Swisscom Nears €8 Billion Deal for Vodafone’s Italian Unit
(Bloomberg) -- Swisscom AG is in advanced talks to buy Vodafone Group Plc’s Italian business for €8 billion ($8.7 billion) on a cash and debt-free basis after fending off competition from rivals including French billionaire Xavier Niel.
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The exclusive discussions to merge Vodafone Italia and Swisscom’s Fastweb SpA business would create a more efficient company, Swisscom said in a statement on Wednesday, confirming an earlier Bloomberg News report. The agreement isn’t final and there’s no certainty a deal will go through, the company said.
Vodafone prefers Swisscom’s bid over a previous proposal from Niel’s Iliad because it has a larger cash component, a person familiar with the matter said. The British phone company last month rejected Iliad’s final offer, which proposed forming a joint venture with the Vodafone business in Italy in a bid that included €6.6 billion in cash proceeds for an enterprise value of €10.45 billion.
Read More: Iliad Says Vodafone Rejected New Offer for Italian Unit
What Bloomberg Intelligence Says:
Vodafone’s advanced talks to sell its Italian unit for €8 billion to Swisscom makes its rejection of Iliad’s €10.5 billion JV bid questionable given the latter would result in €6.6 billion in cash and a 50% stake in the combined entity — a riskier but likely more value-accretive option. Swisscom’s offer implies a 7.6x forward EV/Ebitdaal multiple, in line with the 5x-11x comparable M&A range, while reducing leverage 0.4x.
— Erhan Gurses, BI telecoms analyst
Fastweb’s Chief Executive Officer Walter Renna, a company veteran who took the top job in October, is working to maintain the growth his predecessor, Alberto Calcagno, oversaw for 40 consecutive quarters. Revenue rose 6% last year and earnings before interest, taxes, depreciation, amortization and leases gained 3%, according to a statement earlier this month.
Vodafone Italia and Fastweb are the country’s second- and fourth-biggest operators, respectively, with combined sales of about €7 billion annually. Italy accounts about 11% of Vodafone’s revenue and is its largest market after Germany and the UK.
The Swisscom offer is expected to face scrutiny of local authorities as well as European ones. Regulators may be less inclined to intervene because Italy would still have four mobile carriers if the deal goes through. Reducing the number to three in a market is seen as a red line for many potential tie-ups.
However, there are signs that the executive branch of the 27-member European Union is easing its position on competition. In Spain, Orange SA’s local unit and Masmovil Ibercom SA won conditional approval from the European Commission last week for a tie-up to create the country’s largest operator after agreeing to certain remedies.
The Vodafone deal is poised to kick off talk of more merger and acquisitions in Italy, one of Europe’s most competitive markets. Iliad’s 2018 entry into the country offering cheaper, no-frills mobile plans helped spark a price war.
Monthly subscriptions for full-fiber landline services, which usually include unlimited Internet, can cost as little as €20 to €25, about a quarter of what most US consumers pay.
Even after its failed attempts to buy Vodafone’s Italian business, Iliad could still pursue deals. Last year Iliad’s country head Benedetto Levi said the phone company would play an active role if M&A opportunities in Italy emerge.
Telecom Italia SpA, the former phone monopoly, is also on the lookout as it awaits the closing of a €22 billion deal to sell its landline grid to KKR & Co, expected this summer.
“We are ready to do our part on M&A activity in the country when we will finalize the KKR deal,” Telecom Italia Chief Executive Officer Pietro Labriola said this month in a conference call with analysts.
CK Hutchison Holdings Ltd. has considered a number of deals for its Wind Tre SpA unit. In February, it halted a deal to sell a controlling stake in Wind Tre SpA network to buyout firm EQT AB.
--With assistance from Benoit Berthelot and Antonio Vanuzzo.
(Updates with additional context throughout)
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