This is how Swisscom is preparing the Fastweb-Vodafone Italia wedding
The Swiss telecommunications group Swisscom buys 100% of Vodafone Italia for 8 billion in cash for a merger with Fastweb. The operation will create the second Italian fixed operator after Tim. Facts, numbers and comments
Vodafone sells its Italian business to Swiss company Swisscom which will then merge it with Fastweb.
The Swiss telecommunications giant Swisscom has entered into binding agreements with the Vodafone group for the acquisition of 100% of Vodafone Italia for 8 billion on a cash and debt free basis with the aim of then integrating it with Fastweb, its Italian subsidiary. This was announced in the two notes from Swisscom and Vodafone. The transaction, subject to regulatory and other customary approvals, is expected to close in the first quarter of 2025. It will not require a vote of Swisscom shareholders.
Vodafone Italia and Fastweb are the country's second and fourth largest operators respectively, with a combined turnover of around 7 billion euros a year, Bloomberg notes. The agreement will create the second Italian fixed operator behind Tim, the latter involved in the sale of the fixed network to the American fund KKR.
The operation was promoted by the markets: in London Vodafone jumped (+4.2% to 68.93 pence) in the wake of the agreement. In Zurich, Swisscom jumped +2.9% to 518.60 Swiss francs.
THE DETAILS OF THE OPERATION
Swisscom's acquisition of Vodafone Italia will take place in cash and is expected to generate synergies of around 600 million.
The merger between the two companies "will allow the new entity to unlock significant value for all stakeholders, support investments in the Italian telecommunications market and offer innovative and competitively priced convergent services, improving performance" indicates the Swisscom note.
WHAT NEWCO WILL DO
The newco that will be born, which will create the first operator in Italy for ftth (fiber to the home), and the Vodafone group, explains the Fastweb note, will stipulate some transitory and long-term service agreements, including a licensing agreement that allows the use of the Vodafone brand in Italy for a maximum of five years after closing. Vodafone will provide some services for an initial total annual service cost of €350 million, expected to decrease over time.
Over the last ten years, Fastweb has recorded growth of over 50% in terms of customers, turnover and adjusted Ebitda and has established itself as one of the main operators in the Italian market, continues the Fastweb note, specifying that "Vodafone Italia is a quality mobile network with a large customer base. By combining Fastweb's strengths in fixed connectivity with Vodafone Italia's leadership in mobile services, the NewCo will be able to generate significant benefits for consumers, businesses and the country."
“This operation – commented Fastweb CEO Walter Renna – marks a turning point for Fastweb and will generate significant value for all stakeholders”. For Christoph Aeschlimann, CEO of Swisscom, "Fastweb and Vodafone Italia represent an ideal combination to generate high added value for all stakeholders".
WE ALSO LOOK BEYOND ITALY
Vodafone and Swisscom, the note announces, are also exploring a closer commercial relationship to enable collaboration in a wide range of areas beyond Italy.
FERMENT ON THE STOCK MARKET
Ferment in Europe in the telecommunications sector, with the Stoxx 600 sub-index marking the best performance in the Old Continent with an increase of 0.9%, reports Radiocor .
The news of the agreements gives impetus to Vodafone shares, which gain 4.3% in London (FTSE 100 +0.03%) and trade at 68.92 pounds per share, after reaching a high of 69.76 pounds . Swisscom shares also improved, rising by 2.6% in Zurich (Smi at -0.04%) and trading at 516.6 Swiss francs per share.
VODAFONE GROUP PLANS
For its part, Vodafone Group today announced the final phase of the sizing of the portfolio announced in May 2023, through the binding agreement for the sale of 100% of its activities in Italy to Swisscom. Thus, "the European presence is remodelled, focused on growth markets, with strong positions and local scale".
THE EUROPEAN PRESENCE REDESIGNED
Vodafone announced plans to merge its mobile phone business with Three UK, owned by Hong Kong conglomerate CK Hutchison, in June . CK Hutchison owns the Italian telecommunications company Wind Tre. Then in October the British telecommunications group sold Vodafone Spain to the Zegona Communications fund for a value of 5 billion euros, of which at least 4.1 billion in cash and up to 900 million euros in preference shares redeemable within six years of the closing. The Spanish deal marked the latest part of the company's business rationalization plan after shares fell to 20-year lows earlier this year, and follows the May 2023 announcement of 11,000 job cuts of work, according to Reuters .
Then Vodafone's decision to exit the Italian market with the sale of Vodafone Italia to Swisscom, rather than Iliad. At the end of January the British multinational rejected Iliad's proposal to combine the activities of the two companies in Italy in a 50/50 joint venture under which the British group would have received 6.6 billion euros in cash for an enterprise value of 10. 45 billion euros – he made it known that the "sale to Swisscom" is the "best solution for the shareholders" "In terms of value creation, proceeds and certainty of the deal".
BUYBACK FOR SHAREHOLDERS
“The sale of Vodafone Italia to Swisscom creates significant value for Vodafone and guarantees the maintenance of its leadership position in Italy” declared Margherita Della Valle, CEO of the British multinational, adding that “our transactions in Italy and Spain will provide 12 billion euros of upfront cash proceeds and we intend to return $4 billion to shareholders through buybacks.”
Specifically, the sale, entirely in cash, to Swisscom for 8 billion euros represents "7.6 times the consensus adjusted EbitdaaL for fiscal year 2024", explains the Vodafone note. With the new capital allocation framework, including the dividend which will be lowered to 4.5 cents per share from fiscal 2025, there is €4 billion of capital that will return to shareholders through share buybacks and a new leverage range of 2.25x – 2.75x.
THE PROJECTS OF THE ELVETIC GROUP
Moving on to Swisscom, with this transaction the Swiss group significantly strengthens its presence in Italy, where it has successfully operated since 2007 through Fastweb. Swisscom said last month that the deal would boost its cash flow and have "a positive impact on its dividend policy."
As Reuters recalls, its Italian subsidiary Fastweb currently provides mobile services on the Wind Tre network (owned by Hutchison) and the two companies have an agreement to deploy 5G networks.
The acquisition is expected to create substantial value for Swisscom shareholders, be free cash flow neutral for Swisscom in the first year and accretive to free cash flow starting in the second year after closing.
The acquisition will be entirely debt financed, increasing Swisscom's leverage to 2.6x (net debt/Ebitda) at the end of 2025, while maintaining a strong balance sheet. Swisscom also intends to increase the annual dividend payable in 2026 to 26 francs per share for the 2025 financial year, with the ambition of further dividend growth subsequently supported by the realization of synergies and subject to the evolution of free cash flow .
THE SUPPORT OF THE SWISS GOVERNMENT
Finally, the operation has the approval of the Swiss government.
The Swiss Confederation, which is Swisscom's majority shareholder, separately said it supported the deal. The operation itself had raised controversy among political parties in Switzerland, as reported by Startmag . “The Federal Council was informed in good time about the purchase intention. The Swiss government has found that the acquisition of Vodafone Italia is not contrary to its strategic objectives and has established various conditions to mitigate risks. Swisscom has confirmed that it satisfies all of them”, specifies the note.
“One of the most important expectations expressed by the Federal Council concerns the structural and organizational separation between activities in Italy and those on Swiss soil. The ban on Swisscom taking over universal service mandates abroad remains valid. The decision to proceed with the transaction falls under the exclusive competence and responsibility of the Swisscom board of directors. Regardless of the acquisition, the Confederation's owner strategy will be examined during the current year, as required by the Confederation's Corporate Governance Principles. This examination includes issues related to the privatization or partial privatization of the company" says the Bern government.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ecco-come-swisscom-apparecchia-le-nozze-fastweb-vodafone-italia/ on Fri, 15 Mar 2024 11:58:09 +0000.