Swisscom (SCMN.S) announced on Friday a significant expansion in Europe’s telecom sector by acquiring Vodafone Italia for 8 billion euros ($8.7 billion), planning to integrate it with its Italian subsidiary Fastweb.
This move is part of a broader wave of mergers and acquisitions reshaping the highly competitive European telecom markets.
Notably, this announcement comes in the wake of Orange’s (ORAN.PA) Spanish arm merging with MasMovil and Vodafone (VOD.L) offloading its Spanish operations to Zegona Communications (ZEG.L).
Swisscom, under the Swiss government’s majority ownership, will finance this acquisition entirely through debt.
Vodafone anticipates distributing 4 billion euros to its shareholders and proposes to cut its dividend by half to 4.5 euro cents per share starting from the 2025 fiscal year, following its divestitures in Italy and Spain.
The news positively impacted the companies’ stocks, with Vodafone’s shares increasing by 5.7% in London and Swisscom’s by 4.2% in Zurich.
Analysts from Berenberg noted Swisscom’s strategy to diversify its portfolio by bolstering its presence in the challenging Italian market, though the forecasted dividend increase for the 2025 fiscal year and expected cost synergies might alleviate concerns.
The acquisition positions Swisscom as Italy’s second-largest fixed-line broadband provider and a formidable competitor in the mobile sector, challenging the market dynamics shaped by Iliad’s entry in 2018 with aggressive pricing.
Swisscom CEO Christoph Aeschlimann expressed confidence in the strategic benefits of the acquisition, emphasizing the company’s longstanding success in Italy.
The Swiss government, holding a 51% stake in Swisscom, supports the transaction.
Furthermore, Swisscom aims to achieve 600 million euros in yearly savings, primarily by transitioning Fastweb mobile customers to the Vodafone network, with the deal’s closure anticipated in early 2025 without necessitating shareholder approval.
This transaction marks Vodafone’s “third and final step” in restructuring its European portfolio, as stated by CEO Margherita Della Valle, following the sale of its Spanish business and the merger of its UK operations with Hutchison’s Three.
Despite rejecting previous offers for its Italian business, including a notable bid from Iliad and Apax Partners, Vodafone chose Swisscom for its compelling value, upfront cash, and streamlined regulatory review process in Italy, avoiding the complexities of a European Commission scrutiny.
This strategy contrasts with the potential pitfalls of a joint venture with Iliad, highlighting Swisscom’s favorable proposal.