France's Illiad Makes Bid to Buy T-Mobile US

Illiad, the mobile service provider that has revolutionized the French mobile market, has made a bid to buy T-Mobile US, an unexpected move that might be a nightmare for the other U.S. mobile service providers.

Iliad has offered $15 billion in cash for 56.6 percent of T-Mobile US, at $33 per share. That is key to its bid, as Sprint has been seen paying $30 billion for all of T-Mobile US.

Illiad values the remaining 43.4 percent of T-Mobile US at $40.5 per share on the basis of

$10 billion of synergies to the benefit of the T-Mobile US shareholders.

This leads to an overall value of $36.20 per share, a premium of 42 percent over T-Mobile US’s

unaffected share price of $25.41, Illiad argues.

The cash portion would be financed via a combination of debt and equity. Iliad has the support of leading international banks for the acquisition debt. The equity portion would be approximately €2 billion.

In France, Illiad rapidly gained market share by slashing prices, and partly by relying on Wi-Fi access (“Wi-Fi First”) as a way of controlling its costs.

As T-Mobile US already is the successful attacking carrier in the U.S. market, succeeding in large part because T-Mobile US has slashed prices and radically simplified purchase decisions, T-Mobile US already operates in the mode of Illiad’s Free Mobile operation in France.

Should the bid move further, and eventually succeed, another strategic option awaits, namely a business tie-up of some kind with Comcast, one might argue, as that would allow Illiad to leverage the Wi-Fi-first access model broadly across U.S. markets.

The financials are not entirely clear, as Illiad is smaller than T-Mobile US. In its first quarter of 2014, Illiad reported revenues of about a billion euros ($1.34 billion). T-Mobile US reported second quarter revenues of about $1.45 billion.

Illiad had total first quarter 2014 subscribers of 14.3 million (8.6 million mobile subscribers and

5.7 million landline broadband subscribers). T-Mobile US had more than 50 million customer accounts in the second quarter.

T-Mobile US has a market value of about $24.8 billion. Iliad's market value is about €12 billion ($16 billion).

Nor is it so clear how, and whether, Illiad can line up financing for such a deal.