Britain’s multinational telecommunications company Vodafone Group plc (GB:VOD) is mulling the sale of its Italian unit to Switzerland-based Swisscom AG (DE:SWJ). Both parties confirmed that they are in advanced talks on the deal and have agreed on a preliminary purchase price of €8 billion on a cash and debt-free basis. VOD shares are trending higher this morning on the news and were up 3.2% as of the last check.
Swisscom, which has a 51% government holding, plans to merge Vodafone Italia with Fastweb Spa, its Italian fibre broadband unit. Meanwhile, Vodafone is reportedly expected to take a minority stake in the combined entity.
Vodafone Sees a Best Fit in Swisscom
Vodafone has been long seeking a potential fit for its Italian unit as it is on a strategic turnaround path. Under the new CEO Margherita Della Valle, Vodafone is streamlining its operations and plans to divest those units where growth opportunities seem difficult. The deal with Swisscom offers “the best combination of value creation, upfront cash proceeds and transaction certainty for Vodafone shareholders,” the company said.
The deal news comes weeks after Vodafone dismissed an earlier offer from privately-held France-based telecom firm Iliad SA’s bid to unite their Italian businesses. In December last year, rumours of a potential tie-up between Vodafone and Swisscom were already doing the rounds. However, negotiations with Iliad were always at the forefront. Having said that, the deal with Swisscom could face lower regulatory scrutiny because of lesser perceived synergies compared to that with Iliad.
Is Vodafone a Buy, Sell, or Hold?
With four Buys, six Holds, and one Sell rating, VOD stock has a Moderate Buy consensus rating on TipRanks. The Vodafone Group plc share price target of 90.91p implies 32.6% upside potential from current levels.
