Vodafone Group Plc. (VOD - Analyst Report), the second-largest wireless carrier in the world, is considering to acquire Italian fixed line operator, Fastweb S.P.A. The move is viewed as an attempt by the company to bolster its landline and internet assets.
Fastweb, a unit of Swisscom AG, is Italy’s third-largest retail broadband operator and is reported to have 1.9 million customers. This is the third approach by Vodafone to acquire Fastweb, as its earlier offers were rejected by Swisscom.
Fastweb sells bundled TV and broadband packages in partnership with Sky Italia Srl. The company has also signed an agreement with Telecom Italia S.P.A. (TI - Snapshot Report) to develop broadband infrastructure.
This is the second approach by Vodafone in quick succession to acquire a European telecom operator after it recently made an initial offering of €7.2 billion (approximately $9.6 billion) for Kabel Deutschland. Kabel Deutschland offers Pay-TV, broadband internet and fixed-line voice services through cable as well as wireless services by collaborating with the other industry players.
Vodafone exited the financial year 2013 with cash and cash equivalents of £7.6 billion ($12.05billion) and free cash flow of £5.6 billion ($8.8 billion). However, the company has a high leverage position with an outstanding debt of £29.0 billion ($45.9 billion) at the end of 2013.
Pricing pressure and macroeconomic uncertainty has affected Vodafone as the company reported a 16% annualized decline in revenues from Southern Europe. Declining revenues from countries like Italy and Spain majorly affected the results.
Inspite of the poor performance, Vodafone is eying a number of acquisitions to strengthen its services across Europe. The company is rumoured to sale its 45% Verizon Wireless stake to the U.S. telecom giant, Verizon Communications Inc. (VZ - Analyst Report) for $100 billion. The proceeds might be used to fund the aforementioned purchases.
We believe that the takeover of Fastweb will not only provide Vodafone access to the existing setup of Fastweb but will also fortify its position against rival, Liberty Global Inc. (LBTYA - Analyst Report), which is currently competing with Vodafone over European assets.
However, it remains to be seen whether the company goes ahead with these acquisitions if its proposed stake sale to Verizon does not materialize.
Vodafone currently carries a Zacks Rank #3 (Hold).