Swisscom (SCMN.S) said on Friday it will buy Vodafone Italia for 8 billion euros ($8.7 billion) and merge the business with its Italian subsidiary Fastweb in the latest round of consolidation in Europe's most competitive telecoms markets.

The acquisition follows the merger of French mobile operator Orange's (ORAN.PA) Spanish business with rival MasMovil, that was approved earlier this week, and Vodafone selling its Spanish unit to Zegona Communications (ZEG.L) last October.

Swiss government-controlled Swisscom said the Vodafone Italia deal will be debt-financed and paid in cash.

Vodafone said it would return 4 billion euros of capital to shareholders and halve its dividend to 4.5 euro cents a share from its 2025 financial year onwards after the Italian deal and the sale of its Spanish operation.

Its shares were 3.2% up in London while Swisscom gained 1.8% on the Zurich exchange.

The Swisscom deal will create Italy's second-biggest fixed-line broadband operator behind TIM (TLIT.MI), with a strong presence in the prized business segment, and a leading player in mobile.

It comes as operators have struggled to make returns on capital in recent years, while Swisscom - the dominant player in Switzerland - has laboured with almost flat revenue growth.

Swisscom CEO Christoph Aeschlimann said the deal made strategic sense in view of his company's long involvement in Italy and the "flattish" development at home.

"We are in the Italian market in 17 years so this is a next step... reinforcing our position in the market where we are very successful," he told reporters. "I am 100% convinced that this transaction strengthens Swisscom as a whole."

He did not rule out further deals in the future, but said the company will focus on integrating Vodafone Italia first.

Swisscom's move was backed by Bern, which holds a 51% stake, Aeschlimann said.

The Swiss government said its ownership strategy for Swisscom will be reviewed over the course of 2024, noting it was a process which "includes issues of privatization or partial privatization of the company," without giving more details.

Swisscom has targeted 600 million euros in annual savings mainly from migrating mobile phone customers from Fastweb to the Vodafone network.

The deal is expected to be closed in the first quarter of 2025, and will not require a shareholder vote.

Vodafone's CEO Margherita Della Valle said the deal was the third and final major step in reshaping its European portfolio after she agreed to sell its Spanish operation and merge its British unit with Hutchison's Three last year.

Della Valle, who started her Vodafone career in Italy, is seeking to improve Vodafone's profitability by striking major deals, something which eluded her predecessor.

($1 = 0.9194 euros)

By: DocMemory
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