Vodafone will transfer its Italian operations to a Swiss rival for €8bn (£6.8bn) as the struggling telecoms giant moves ahead with plans to slim down its business.
Confirmation of the agreement with Swisscom was announced on Friday morning by Vodafone, which said it would return proceeds from the sale to investors through a share buyback.
As part of the deal, Vodafone will continue to provide services to Swisscom for up to five years at a cost of approximately 350 million euros per year.
The two companies said they are also exploring closer commercial ties outside Italy.
Swisscom is Switzerland's largest telecommunications company, majority-owned by the Swiss government.
It also operates in Italy through its mobile and broadband company Fastweb.
Vodafone said the deal was the final step in its European restructuring following the sale of its Spanish operations to Zegona for 5 billion euros.
Executives said the deal would generate cash proceeds totaling 12 billion euros.
This will enable the company to initiate a share buyback worth 4 billion euros, with the option to buy back a further 2 billion euros once the agreement with Italy is finalized.
However, Vodafone also plans to halve its dividend to 4.5 cents per share from next year.
Under CEO Margherita della Valle, Vodafone has been trying to clean up its sprawling business and return to a growth path.
The telecoms giant has signed a £15bn deal with Three to build the UK's biggest mobile network, but this faces regulatory scrutiny from both a competition and national security perspective.
However, the company is still struggling to rebuild its business in Germany, its largest market.
Vodafone has announced that it will reorganize the group into five business units. As part of the review, Philippe Rogge, president of Vodafone Germany, will resign.
Karen Egan of Enders Analysis said: “The company has highlighted how it is now well placed to grow without Italy and Spain and with the prospect of a better position in the UK.
“Germany is more important than ever, but the jury is still out on its turnaround.”
Vodafone said its partnership with Swisscom requires regulatory approval and shareholder approval.
If shareholders do not approve the transaction and enter into an alternative transaction within 12 months, they have agreed to pay Swisscom a penalty of 150 million euros.
Della Valle said: “Vodafone's sale to Italy's Swisscom will create significant value for Vodafone and ensure that we maintain our leading position in Italy, built by our colleagues' dedication to serving our customers over many years. I guarantee it.
“Going forward, our business will operate in a growing telecommunications market where we will be able to establish a strong position and deliver stronger and more predictable growth in Europe.”
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