Swisscom AG (SCMN.VX: Quote, Profile , Research) will repurchase a 25 percent stake in Swisscom Mobile from Britain's Vodafone Group Plc for 4.25 billion Swiss francs (1.8 billion pounds) in a long-awaited deal to fortify its home market position.
The debt-financed purchase, which is more costly than analyst expectations of around 3.5 to 3.75 billion francs, will boost Swisscom's annual profit by around 180 million francs starting in 2007, Swisscom said in a statement on Tuesday.
The deal will enable Swisscom, which is majority held by the government, to strengthen its domestic position after the government blocked foreign takeovers, while for Vodafone (VOD.L: Quote, Profile , Research) the proceeds will allow it to reduce debt.
The British-based mobile giant said it expected to record a gain on the sale of approximately 100 million pounds ($195 million) for the year ending March 31, 2007.
Vodafone said the deal would not materially affect its mobile revenue and profit margin outlooks for this financial year, but could hit its cash flow outlook as it no longer received dividends from Swisscom Mobile.
"The 4.25 billion Swiss franc cost is well ahead of expectations," said analysts at investment bank Bear Stearns. "However, with EPS increasing by 9.7 percent, the inefficient balance sheet repaired and returns set to increase in 2008, we believe the deal is broadly positive for Swisscom."
Shares in Swisscom were up 0.7 percent at 456 francs by 1434 GMT. Vodafone's stock was down 0.9 percent at 143.8 pence in a weak UK market.
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