Vodafone Italian sale in doubt

Vodafone: Not under as much pressure to cut debt as some of its rivals

Vodafone's planned 11bn euro ($10bn; £7bn) sale of Italian fixed-line telecoms business Infostrada to power utility Enel has been thrown into doubt by a ruling from Italy's competition authorities.

The authorities ruled late on Wednesday that the deal could only proceed if state-controlled Enel sold 5,500 megawatts of generating capacity.

Analysts said that while the conditions were not as onerous as some had expected, they might still allow Infostrada's prospective buyer to demand a renegotiation of the deal.

In a statement, Enel said it and Vodafone would assess the implications of the ruling while a Vodafone spokesperson said it was too soon to comment other than to say the company remained committed to the sale.

Criticised for paying too much

Enel aims to combine Infostrada with Wind, its domestic mobile phone joint venture with France Telecom's Orange.

But since agreeing the Infostrada deal last October, Enel has seen valuations of telecoms firms plunge and been criticised for paying too much for its acquisition.

Analysts said Enel shareholders might see the regulator's ruling as a good excuse for renegotiating or backing out of a deal that looked expensive given current market conditions.

In addition, the requirement to sell the generating capacity might cost the company up to 1.3bn-1.5bn euros a year in lost revenue, according to Enel's own estimates.

If the Infostrada deal collapsed, Vodafone was highly unlikely to secure as good a price for the company as Enel had agreed to pay, analysts said.

Limited significance

Despite this potential setback for Vodafone, analysts said the price eventually achieved for Infostrada was of limited significance for the overall balance sheet of Vodafone - the world's largest mobile phone operator.

While the company has invested heavily in acquiring new, third-generation licences and expanding its global "footprint", it is not under the same pressure to reduce debts as many of its rivals, they said.

Nevertheless, Vodafone shares have been hit hard in recent weeks by deteriorating investor sentiment towards telecoms.

In early afternoon trading on Thursday, the shares were down 3% at 181.75 pence, compared with a high of about 400p in March last year.

Enel shares were up 0.8% at 3.78 euros.