If Swisscom buys Vodafone Italia the first Ftth operator in Italy is born

A turning point in the consolidation of TLC in Italy. After all the hype of the last few months (the first rumours were published in the Sole 24 Ore on 11 November), confirmation has now arrived from both companies: both Swisscom and Vodafone have put it down in black and white that they are in exclusive negotiations for a transaction in Italy. Specifically, this would be the purchase of 100 per cent of Vodafone Italia for cash. Swisscom's objective is a merger of Vodafone Italia with its subsidiary Fastweb.

The two groups have agreed on a preliminary purchase price of EUR 8 billion in cash and debt-free. The transaction, reports a note from the Swiss telecommunications bigwig, is expected to result in value and cash flow growth for Swisscom. "After the acquisition," the statement further reads, "Swisscom will maintain at least an 'A' corporate credit rating and there would be a positive impact on dividend policy."

"The planned merger between Vodafone Italia and Fastweb," the note continues, "would combine high-quality mobile and fixed infrastructures, expertise and capabilities to create a leading group based on business convergence. The increased scale, more efficient cost structure and significant potential for synergies would allow the new entity to unlock value for all shareholders'. The transaction "would represent a key step towards enabling Swisscom to achieve its long-term value creation objective in Italy and to be fully compliant with the strategic objectives set out by the Swiss Federal Council for Swisscom".

In the morning, Vodafone Group also issued a statement confirming the exclusive negotiations. "Vodafone," reads the note from the British multinational telecoms company led by CEO Margherita Della Valle, "has been in discussions with several parties to explore options for market consolidation in Italy and believes this potential transaction offers the best combination of value creation, upfront cash consideration and transaction certainty for Vodafone shareholders. In this framework, 'subject to the definition of a binding contractual agreement for the transaction, the parties have agreed that Swisscom would acquire Vodafone Italia for an enterprise value of EUR 8 billion on a cash and debt free basis and subject to customary adjustments at the time of closing,' the note further explained.

What is envisaged according to the two notes is therefore a complete exit of Vodafone from Italy. No joint venture, as Iliad would have wished with its offer, made at the end of January and rejected by the Newbury-based telecoms multinational. The cash payment and the sale of the JV instead were preferred over a higher valuation since, as Intermonte reports, the EUR8 billion preliminary valuation, equal to around 6 times EBITDAaL, is more than 20% lower than the offer submitted by Iliad, which valued the asset at around EUR10.45 billion equal to 7.8 times EBITDAaL but with a cash component of EUR6.6 billion.