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December 19, 2006

Vodafone sells Swiss Mobile stake

Vodafone Group Plc has agreed to sell its 25% stake in the leading Swiss mobile operator to Swisscom AG, as the world's largest mobile operator continues to withdraw from markets where it cannot establish a dominant position.

By CBR Staff Writer

Vodafone is selling the 25% holding in Swisscom Mobile for a cash consideration of CHF 4.25bn ($3.49bn). It paid CHF 4.5bn ($3.69bn) for the stake in 2001.

Swisscom said an estimated CHF 3.5bn ($2.87bn) to CHF 3.75bn ($3.08bn) of the CHF 4.25bn ($3.49bn) purchase price would be financed by debt, and would boost its annual profit by around CHF 180m ($148m) starting in 2007. Swisscom already owns 75% of Swisscom Mobile.

As recently as November 8, Swisscom was being non-committal over various media reports that the UK operator was considering offloading its 25% stake. At that time, Swisscom CEO Carsten Schloter said no decision had been made so far and no timeline was in place. Then later in the month Swisscom admitted it was entering into negotiations with Vodafone.

The deal brings with it a number of advantages for the cash-rich carrier, namely the option to optimize its balance-sheet structure, and improve its position in terms of converged offerings in its domestic market. It will continue to resell the Vodafone Live! service after the two parties signed a revised long-term Partner Network Agreement in Switzerland with an initial five-year term.

There have been few acquisition opportunities for Swisscom in recent years. Domestically, it is facing a saturated market, and in the past it has repeatedly said that foreign acquisitions were crucial to its future, and it set aside approximately CHF 1bn ($757m) for this purpose.

However, in January 2006, Swisscom’s then CEO, Jens Alder, had little choice but to resign after the carrier’s much-needed expansion strategy was effectively torpedoed by the Swiss government when in late November 2005 it banned any overseas acquisitions. The Bern, Switzerland-based carrier had to withdraw from the race to acquire Irish carrier Eircom Group Plc. It had also been in the frame to acquire the former Danish incumbent TDC AS. Swisscom had previously tried and failed to acquire neighboring carriers Telekom Austria AG and Cesky Telecom AS.

For Vodafone, the deal represents another retreat from a non-core market where it cannot achieve majority control of the local operation. Vodafone once had the ambition to be a global player, with a presence in most countries. However, under chief executive Arun Sarin, the operator has become much more conservative and has been withdrawing from certain markets in order to concentrate on western Europe and emerging markets such as South Africa, Turkey, and India.

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Vodafone has so far sold its Japanese unit, Vodafone KK, to Softbank for JPY 1.8 trillion ($15.5bn), parted with its 25% stake in leading Belgian mobile operator Proximus for 2bn euros ($2.55bn), and disposed of its loss-making Swedish operation Europolitan Vodafone AB for 994m euros ($1.2bn).

Vodafone and Swisscom have enjoyed an excellent relationship since we acquired our 25% stake in Swisscom Mobile in January 2001, said Sarin. We do not, however, see ourselves as the most appropriate holder of this minority stake in the longer-term and Swisscom is keen to increase its holding in Swisscom Mobile to drive through synergies in its fixed and mobile businesses. It therefore makes sense to sell our stake now for an attractive price.

Vodafone said it expects to add a gain of only 100m pounds ($196m) from the deal to its books for the year ending March 31, 2007. It also expects the same amount to disappear from its annual dividends. Shares in the UK operator fell 0.34% to 144.75 pence ($2.84) on the London Stock Exchange on Tuesday.

Swisscom Mobile competes against the likes of Sunrise (owned by Danish operator TDC AS), and Orange (France Telecom SA) in the Swiss market.

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