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UPDATE 1-Iliad to sell mobile towers in France and Italy to Cellnex for 2 bln euros

Mathieu Rosemain

euros@

* Iliad shares rise on planned asset sales

* Needs fresh cash to spend on networks

* Iliad Q1 sales up 7.7 pct

* Sees return to growth in France in 2019 (Adds details, background)

PARIS, May 7 (Reuters) - Telecoms group Iliad has agreed to sell its mobile tower assets in France and Italy to Cellnex for 2 billion euros ($2.24 billion), in a deal aimed at strengthening its balance sheet and general financial position.

The group, which has shaken up the French mobile market since 2012 with low-cost services, is facing aggressive fixed and mobile discounts from rivals in its home country, and has had struggles over propping up its struggling share price.

Nevertheless, the planned asset sale lifted Iliad's shares by around 6 percent in early session trading, although Iliad's stock price remains down by around 20 percent so far in 2019.

The exclusive talks with Cellnex would lead to a sale of 70 percent of the company that manages Iliad's mobile telecom infrastructure in France, representing 5,700 sites, and the whole of the company that manages its towers in Italy, which has 2,200 sites.

Iliad, whose first-quarter sales grew by 7.7 percent to 1.29 billion euros, expects both transactions to close in the fourth quarter of this year.

"This transaction is part of a long- term industrial strategy allowing us to accelerate rollout of our 4G and 5G networks and to increase Iliad's investment leeway," said Iliad chief executive Thomas Reynaud.

"This transaction supports the group's new growth and innovation cycle. It enables more efficient infrastructure roll-outs in the future while meeting the challenges of further increasing territory coverage," he added.

Cellnex, which already has 23,400 tower sites after adding 8,000 sites since 2015 through acquisition deals, is looking for ways to grow further in its six main markets in Europe, which encompass Spain, France, the Netherlands, the UK, Italy and Switzerland.

In France alone, Cellnex signed in 2017 a deal with Iliad's rival Bouygues Telecom to acquire a total of 3,000 sites for close to 900 million euros.

Cellnex, which reported an 18 percent core profit rise in 2018, wants to buy controlling stakes and has said there are different options to finance the new investments, including raising capital from shareholders.

Iliad also updated the market about its financial targets. It targeted a return to revenue growth in France in 2019 and an acceleration of its core operating profit growth in the second-half of the year.

Iliad also expects an earnings before interest, tax, depreciation and amortisation (EBITDA) margin in France of over 40 percent in 2020.

In Italy, it expects to generate 1.5 billion euros in Italy, in the long term.

($1 = 0.8921 euros) (Reporting by Mathieu Rosemain; Additional reporting by Paul Day Editing by Sudip Kar-Gupta)