Vodafone agrees to €8B sale of Italian biz to Swisscom

After months of rumor and speculation, Vodafone Group confirmed it is selling its Italian operations to Swisscom for €8 billion (US$8.7 billion) on a debt and cash free basis. The Swiss operator said its aim is to merge Vodafone Italy with Fastweb, its subsidiary in Italy. 

The move had been much anticipated, and completes a trio of transactions pursued by Vodafone to either rid itself of underperforming operations or bolster them in Italy, Spain and the UK. The Swisscom deal is expected to close in the first quarter of 2025, although it is subject to approval by the Italian Competition Authority and potentially Vodafone shareholders.

In a statement, the group said that following the sales of Vodafone Italy to Swisscom and Vodafone Spain to Zegona Communications, as well as the planned merger of Vodafone UK and Three UK, "Vodafone will now focus its operations in Europe on growing markets, where we hold strong positions with good local scale."

Margherita Della Valle, CEO of Vodafone Group, described the deal with Swisscom as the "third and final step in the reshaping of our European operations" and said it "creates significant value for Vodafone."

"Our transactions in Italy and Spain will deliver €12 billion [$13 billion] of upfront cash proceeds and we intend to return €4 billion [$4.3 billion] to shareholders via buybacks, as part of our broader capital allocation review," Della Valle added.

Swisscom CEO Christoph Aeschlimann said 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," Aeschlimann said in a statement.

Vodafone will continue to provide certain services to Swisscom for up to five years for an estimated annual fee of about €350 million ($381 million). The two groups said they are also exploring a closer commercial relationship in areas including IoT, enterprise services and solutions, procurement, operational shared services and roaming.

Notably, the agreement with Swisscom effectively ends France-based Iliad's dream of buying Vodafone Italy to bulk up its own Italian operations. In January, Vodafone rejected Iliad's second offer to merge their respective units in Italy. The revised proposal issued in December would have seen Vodafone receive €6.6 billion ($7.2 billion) and Iliad €400 million ($434 million) in cash.

All change at Vodafone

Vodafone also unveiled a major revamp of is remaining operations with a number of organizational and management changes that will take effect from April 1, 2024. In future, it will comprise five business divisions: Germany; European Markets; Africa; Vodafone Business; and Vodafone Investments.

Notably, Philippe Rogge is to step down from his position as CEO of Vodafone Germany and exit the group with effect from March 31. Rogge has not been in the post for very long, having replaced the former Germany CEO, Hannes Ametsreiter. in July 2022. He will be succeeded by Vodafone Germany's current head of consumer business, Marcel de Groot.

In other key management changes, Vodafone UK CEO Ahmed Essam has been promoted to the role of CEO of European Markets, with responsibility for the UK as well as Albania, Czech Republic, Greece, Ireland, Portugal, Romania and Turkey. He also takes on the role of executive chairman at Vodafone Germany. Max Taylor, currently chief commercial officer at Vodafone UK, will replace Essam as the CEO of the UK operator. 

In addition, Serpil Timuray, currently CEO of Europe Cluster, has been appointed CEO of Vodafone Investments and will be responsible for Vantage Towers, Vodafone Ziggo, Vodafone Idea and TPG Telecom.

Meanwhile, Vodafone has yet to complete its planned transactions in Spain and the UK. The group appears confident that it will complete the sale of Vodafone Spain to Zegona in the first half of 2024. However, the UK merger remains up in the air as it is currently being scrutinized by the UK's Competition and Markets Authority. The deadline for the phase one investigation is March 22. 

Bulking up in Italy

Swisscom's rationale in buying Vodafone Italy is to create a "leading converged challenger in a market with material growth opportunities." Reuters notes that the deal will create Italy's second-biggest fixed-line broadband operator behind Telecom Italia (TIM).

Swisscom is targeting €600 million ($653 million) in annual savings, which Reuters said will primarily be achieved from migrating mobile phone customers from Fastweb to the Vodafone network.

Notably, Fastweb has previously committed to building a 5G mobile network in partnership with WindTre, with the aim of covering 90% of the population by 2026. Fastweb said its 5G mobile service now covers more than 4,000 municipalities.

In the 12-month period ending on March 31, 2023, Vodafone Italy reported revenue of €4.8 billion ($5.2 billion), which was 4.2% lower year-on-year. Adjusted EBITDAaL fell 14.5% to €1.45 billion ($1.58 billion). In terms of customers, the operator reported 17.2 million mobile customers at the end of December, and just under 3 million fixed broadband customers. It also collaborates with Open Fiber on the deployment of fiber-to-the-home networks. 

In its 2023 financial year, Fastweb reported a 6% increase in revenue to €2.6 billion ($2.8 billion) and underlying EBITDA-AL of €817 million ($889 million), up 3% year on year. The operator has 3.25 million wireline and 3.5 million mobile customers.