Vodafone sign on building
Vodafone sells Italian business for €8 billion / Image source: Adobe
  • Italian business sold for €8 billion
  • Dividend to halve from 2025, €4 billion buyback
  • Reshaped business to focus on growth markets

So-called win-win deals are often touted but rarely delivered, but Vodafone’s (VOD) sale of its Italian business to Swisscom (SCMN:SWX) appears to have pleased both sets of shareholders with shares in the former up 5% and the latter 2% ahead on the news.

Swisscom intends to merge the acquired unit with its own Italian telecoms business Fastweb. Analysts at Vontobel said the combination ‘creates substantial cost synergies, significantly higher than expected’.

For Vodafone, the sale of its Italian operations is the final step in its portfolio right-sizing strategy announced in May 2023. The company will receive €8 billion in cash.

This follows the sale of Vodafone Spain in November 2023 to Zegona Communications (ZEG) for an upfront cash consideration of €4 billion.


From a strategic and operational standpoint, Vodafone said the reshaping of its European footprint alongside the merger of Vodafone UK with Three UK will leave the FTSE 100 firm focused on growing markets where it holds ‘strong’ positions with good local scale.

Financially, the company is introducing a new capital allocation framework which will see €4 billion returned to shareholders via share buybacks while the dividend will be rebased to $0.045 from 2025 from €0.09 in 2024.

Vodafone is targeting an increase in total return to €3.1 billion in 2025, comprising €1.1 billion of dividends and up to €2 billion in share buybacks.

There is an opportunity for further buybacks of up to €2 billion following the sale of Vodafone Italy.

Management reiterated guidance of adjusted EBITDAal (earnings before interest, tax, depreciation, after leases) of circa €13.3 billion and adjusted free cash flow of around €3.3 billion.


Russ Mould, investment director at AJ Bell, commented: ‘The decision to cut the dividend in half from next year is interesting, particularly given the announcement of a €4 billion buyback funded from a portion of the proceeds of the Italian and Spanish transactions.

‘While this is a one-off payment, a lower dividend over the long term reduces Vodafone’s ongoing financial commitment to shareholders. This may help put capital allocation on a more sustainable footing, but it does dilute one of the key reasons people hold the shares.

‘Much will depend on its ability to turn things around in its largest market Germany, with very little for the company to hide behind now if it fails to deliver.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor (James Crux) own shares in AJ Bell.


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Issue Date: 15 Mar 2024