Vodafone to be minor partner in any Italian tie-up with Swisscom, sources say

Tele2 AB

27/02/2024 08:31

By Elvira Pollina and Paul Sandle
       MILAN/LONDON, Feb 27 (Reuters) - Vodafone  VOD.L  will
likely hold a minority stake in a combined entity with
Swisscom's Italian  SCMN.S  unit Fastweb if a deal is reached on
a potential tie-up of their Italian operations, three people
familiar with the matter said.  
    Vodafone's Chief Executive Margherita Della Valle said
earlier this month the British group was in "active discussions"
in Italy, days after rebuffing a proposal by rival Iliad to
create a 50:50 joint venture in the country.
    Multiple sources have identified Swisscom's Fastweb as the
other party in the talks.
    The potential deal being discussed would see Vodafone take a
minority stake in the combined entity, which would take its debt
off Vodafone's balance sheet, said the people, who declined to
be named because talks are not public and are ongoing. 
    Spokespeople for Vodafone and Swisscom declined to comment. 
    Operators in Italy are studying ways to consolidate a market
grappling with shrinking revenue and margins, which is depriving
investors of returns on their capital.
    A deal with Fastweb would create Italy's second-largest
fixed-line broadband operator with a strong presence in the
prized business segment.
    It would also face lower regulatory hurdles than a
combination with Iliad but offers lower potential synergies,
according to analysts.
    Iliad, majority owned by French billionaire Xavier Niel, is
continuing to push consolidation in Europe, and on Monday it
unveiled an agreement to buy a 19.8% stake in Swedish telecoms
operator Tele2 from investment company Kinnevik.
    Italy is the final major market Vodafone wants to fix after
it agreed last year to merge with Hutchison's Three in Britain
and sell its struggling Spanish operation.
    Della Valle, however, has said Italy is a very different
market from Spain for Vodafone.
    She said in November that Vodafone was outperforming its
major competitors in Italy with its strong brand and network, 
but it was a very challenging market in which no player was
delivering returns in excess of cost of capital.
    Vodafone would probably not include in its accounts any
entity in which it holds a stake of 50% or lower, which would
take the new company's debt off its books but limit any control
over its cash flows, meaning it could not rely on the income to
fund its own shareholder returns. 
    Vodafone has already said it will review its capital
allocation, including its dividend and any buyback, after the
Spanish deal completes, expected in the first half of this year.
    Della Valle told analysts this month that she still intended
to update shareholders on its new capital allocation policy in
May, regardless of the outcome of the Italian talks. 
    

 (Reporting by Elvira Pollina and Paul Sandle
Editing by Tomasz Janowski)
 ((elvira.pollina@thomsonreuters.com;))