Swisscom acquires Vodafone Italia in €8bn deal

Source: Swisscom

Swisscom has confirmed it will acquire Vodafone’s Italian operation for €8 billion on a debt and cash free basis.

The Swiss telco plans to merge Vodafone Italia with its existing Italian operator, Fastweb.

The transaction consideration will be 100% cash and will be fully debt-financed. The price represents a multiple of 5.1 times EBITDAaL and 9.2 tiems operating free cash-flow, according to swisscom

Swisscom said the combinatioin would bring together complementary high-quality mobile and fixed infrastructures, competencies, and capabilities to create a leading converged challenger in a market with material growth opportunities.

Swisscom expects annual run-rate synergies of €600 million from the merger, much of this from migration of traffic onto the combined entity’s own infrastructure, which it says is a key step for it to achieve its strategic objective of profitable growth in Italy.

Swisscom intends to increase the dividend and expects to retain its corporate credit rating. The deal will raise its leverage to 2.6 times EBITDA by the end of this year. The transaction remains subject to regulatory and other customary approvals.

The Swiss telco has been operating in Italy since 2007 through Fastweb, which it says has grown by over 50% in terms of customers, revenue and adjusted EBITDA over the past 10 years. It said that bny combining Fastweb’s strengths in fixed connectivity with Vodafone Italia’s position in mobile, the new entity stands to deliver substantial benefits to Italian consumers, businesses, and the country.

The telco aims to close the deal by the end of this quarter, subject to regulatory and other approvals.

Swisscom will retain a licence to operate the Vodafone brand for up to five years after the closing of the deal, and Vodafone will provide some services to the new company for an  initial annual service charge of €350 million.

Swisscom and Vodafone Group are also exploring a closer commercial relationship to enable collaboration across a broad range of areas, beyond Italy. The key areas of commercial collaboration that Vodafone and Swisscom are exploring include IoT, enterprise services and solutions, procurement, operational shared services and roaming.

“Swisscom has been operating successfully in Italy since the acquisition of Fastweb in 2007. Over this period, we have built a strong track record of investment and profitable growth in Italy. The industrial logic of this merger is very strong. Fastweb and Vodafone Italia are an ideal fit to create high added value for all stakeholders. As a result, private and business customers will benefit from the most comprehensive offer. Swisscom will also be strengthened as a whole, allowing us to continue making significant investments in the Swiss and Italian market,” said Christoph Aeschlimann, CEO of Swisscom.

Rejected bid

The Swiss government owns a majority stake in Swisscom, and the deal has been subject to some political pushback. Michael Rechsteiner, the telco’s chairman, said that the goard had “comprehensively assessed the opportunities and risks of this transaction” and noted that the acquisition was “comprehensively assessed the opportunities and risks of this transaction”.

Margherita Della Valle, CEO Vodafone Group, said: “By bringing together Vodafone Italia and Fastweb, we are enabling the creation of a strong converged telco, well positioned to compete in the Italian market. And we are opening the opportunity to establish a broader commercial partnership between Swisscom and Vodafone.”

The acquisition comes after Vodafone rejected the advances of Xavier Niel’s Iliad Group, which placed a higher bid that was better thought-of by some analysts, but fell victim to Vodafone’s preference for a more straightforward all-cash deal that it believed had a better chance of completing.