Vodafone in ‘active’ Italy deal talks as German recovery slows By Reuters

© Reuters. FILE PHOTO: A branded sign is displayed on a Vodafone store in London, Britain May 16, 2017. REUTERS/Neil Hall

By Paul Sandle

LONDON (Reuters) -Vodafone said on Monday it was in “active discussions” about a deal in Italy, its worst performing major market, as it reported a sharp slowdown in growth in its biggest, Germany, in the third quarter.

The British group rejected a merger offer from rival Iliad in Italy last month in favour of pursuing other options.

Sources have said that Vodafone (NASDAQ:), which last year agreed to merge with Hutchison’s Three in Britain and sell its Spanish operation, is exploring a deal with Swisscom’s Italian unit Fastweb.

Vodafone reported third-quarter service revenue growth of 4.7%, the same as the previous quarter, as a smaller decline in Spain helped offset the weaker contribution from Germany, where growth slowed from 1.1% to 0.3%.

Italy was the toughest market, with service revenue declining by 1.3% in the third quarter against a 1.0% drop in the second.

Shares in Vodafone, which have fallen 25% in the last 12 months, were trading down 1.2% in early deals on Monday.

Analysts at Citi said the update was broadly in line with expectations “though the slowdown in Germany may be a concern”.

Last month Vodafone said it was in talks with more than one party in Italy, with one source familiar with the matter saying talks with Swisscom were more advanced than others. Swisscom declined to comment at the time.

Chief Executive Margherita Della Valle said Vodafone had maintained “good” service revenue momentum in the quarter in Europe and Africa, supported by business customer demand.

“Our announced transactions in the UK and Spain are progressing well, and we are in active discussions in Italy,” she said.

Vodafone reiterated its full-year guidance for adjusted core earnings to be broadly flat at around 13.3 billion euros ($14.33 billion), and adjusted free cash flow to come in around 3.3 billion euros.

Analysts, however, are sceptical. They expect on average earnings of 13.07 billion euros and cash flow of 3.13 billion euros, according to a company-complied consensus.

($1 = 0.9278 euros)

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