The complicated structure of the deal involves both Iliad and Niel's private holding company NJJ buying stakes from a group of investment funds, which analysts said reconciles his expansionary ambitions with a need to keep Iliad's debt down in readiness for further consolidation in the French market.
It also comes as Iliad, which disrupted the French mobile telecoms market five years ago with the launch of its Free service, prepares to launch a service next year in Italy, where it is building a new network.
“Clearly we want to keep our balance sheet flexibility for our network rollout and for Italy which is a very interesting geographical diversification," Chief Financial Officer Thomas Reynaud said during a call with analysts on Wednesday.
Under the terms of the transaction, which values eir at about 3.5 billion euros including debt, Iliad will buy a 31.6 percent stake for 320 million euros ($379 million), while NJJ will buy 32.9 percent.
In addition Iliad has an option to buy 80 percent of NJJ's stake in eir in 2024, giving it a further 26.3 percent of the Irish company, according to a statement.
Until then, NJJ will have control over eir's management and Iliad's involvement will be limited to eir's board of directors, Niel said. Richard Moat, eir's chief executive, announced his intention to step down upon completion of the transaction.
A full acquisition of eir by Iliad alone would have compelled the telecoms operator to consolidate eir's net debt of 2.1 billion euros into the French company's accounts, thus limiting its capacity to make a larger acquisition, Niel said.
The prospect of a potential new round of talks to cut the number of operators in the fiercely competitive French market weighed in that decision.
"The surprise is to see Iliad involved in the deal structure," said Nicolas Didio, an analyst Berenberg.
"Ultimately, we believe Iliad will take full control of this asset, but the launch in Italy and the high level of capital expenditure in France mean a full consolidation would tie down too much of Iliad’s balance sheet," he added.
For eir, the deal represents the seventh change of ownership since 1999, a turbulent period during which it got listed and delisted twice and reached the brink of bankruptcy.
The company, originally known as Telecom Eireann, is currently building Ireland’s largest fibre broadband network with the aim of reaching 1.9 million homes and businesses by the end of 2018.
It had earnings before interest, taxation, depreciation and amortisation of 520 million euros on revenue of 1.3 billion in the year to June 30.
The deal is due to complete in first half of 2018, subject to EU Commission Competition clearance.
Before the deal the firm's largest stakeholders were U.S. hedge fund Anchorage Capital Group with 42 percent, Singapore sovereign wealth fund GIC with 20.6 percent and U.S. investment firm Davidson Kempner with 14 percent.
Anchorage and Davidson Kempner will retain stakes of 26.6 percent and 8.9 percent, respectively.
(Additional reporting by Sudip Kar-Gupta in Paris and Conor Humphries in Dublin; editing by Jason Neely, Greg Mahlich)
By Mathieu Rosemain, Gwénaëlle Barzic and Conor Humphries