Swisscom: We Remain Skeptical About Its Acquisition of Vodafone Italy for EUR 8 Billion

Swisscom announced it will be acquiring 100% of Vodafone Italia for EUR 8.0 billion in an all-cash deal. It represents a 7.8 enterprise value/EBITDA after leases multiple before synergies, and 5.1 times after its expected synergies are realized. The acquisition will be fully financed with debt, significantly raising Swisscom's net debt/EBITDA ratio from 1.5 times to 2.6 times. We remain highly skeptical about Swisscom's decision to add significant financial leverage to its balance sheet to enter a market with irrational competitive behavior and strong revenue and margin pressures. Based on our estimates, this deal is value-neutral to Swisscom at best, with a risk of value destruction if synergies are less than expected or competitive pressures intensify in Italy. The deal is still awaiting regulatory approval and is expected to close in the first quarter of 2025. We maintain our CHF 440 fair value estimate and narrow moat rating for Swisscom.