Vodafone is in exclusive talks to sell its struggling business in Italy to Swisscom for €8 billion.
Amid mounting reports of a possible deal, the telecoms group said it had held extensive talks with “several parties” to explore consolidating the business in Italy.
After these, it concluded that the cash deal with Swisscom “delivers the best combination of value creation, upfront cash proceeds and transaction certainty for Vodafone shareholders”.
Swisscom will acquire Vodafone Italy for an enterprise value of €8 billion on a debt and cash-free basis, a multiple of about 7.6 times its 2024 forecast adjusted earnings.
Alongside its third-quarter results this month, Vodafone had said that it remained in “active discussions” over a deal for its Italian business.
Advertisement
The possible sale to Swisscom is designed to simplify the FTSE 100 telecoms group and would create Italy’s second largest fixed-line broadband operator, with a strong presence in the business market.
Swisscom, whose Zurich-quoted shares were down by 1.4 per cent last night, plans to merge the business with Fastweb, its Italian subsidiary. It said the acquisition would boost its cashflow and would have “a positive impact on its dividend policy”. Shares in Vodafone were little-changed at 68¼p. They had risen on Tuesday after a report suggested that Vodafone was likely to hold a minority stake in a combined entity with Fastweb if a deal is reached.
Italy was Vodafone’s worst-performing big market in the third quarter, where service revenue declined by 1.3 per cent. Last month, Vodafone rejected an offer to create a joint venture with Iliad, a smaller French rival, in Italy, under which it would have received €6.6 billion in cash in a deal valuing Vodafone Italy at €10.45 billion.
Berenberg, the investment bank, said that it had valued Vodafone Italy at €7.75 billion on a sum-of-the-parts basis, meaning that it accounted for 13 per cent of Vodafone’s enterprise value overall. “The additional €250 million relative to our model is worth around 1p per share for Vodafone,” it said. “After Vodafone rejection of Iliad’s offer, a deal between Swisscom and Vodafone Italy was always more likely. Nevertheless, an acquisition by Swisscom of Vodafone Italy leading to a Vodafone exit is not what the market is likely to have had in mind.”
The deal in Italy comes after Vodafone last year agreed to merge its UK business with Three, owned by CK Hutchison, the Hong Kong-based conglomerate. The merger is subject to an initial investigation by the Competition and Markets Authority. It also has agreed a €5 billion sale of its Spanish business to Zegona Communications, a London-listed investment vehicle.
Advertisement
Vodafone is one of the world’s biggest telecoms groups, but it has been hampered by the weight of its debts, high costs and intense competition in several markets. The struggles led to Margherita Della Valle, 58, Vodafone’s former finance chief, replacing Nick Read, 59, as its chief executive last April, amid investors’ frustrations over the pace of the overhaul, including the consolidation in some countries to focus on its core Europe and Africa markets.
Analysts at Deutsche Bank said last week that Swisscom was a “well-managed telco in a defensive country with a healthy market structure, strong balance sheet and what we expect will be steady cashflows”.
