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Last updated: March 12, 2007 10:35 am

Swisscom offers €3.7bn for Fastweb

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Swisscom on Monday confirmed plans to buy Fastweb with a €47 a share offer valuing, the Italian telecommunications group at €3.7bn.

Fastweb said on Monday after a board meeting that its founder and largest shareholder had already committed to sell to Swisscom once the full tender offer had been completed, provided that no higher offer was submitted.

Silvio Scaglia, who owns 18.75 per cent of Fastweb, said he was ready to stay on Fastweb’s board if requested by Swisscom.

Fastweb said its board had noted the “good development opportunities” in the Swisscom plan.

Fastweb said yesterday after a board meeting that its founder and largest shareholder had already committed to sell to Swisscom once the full tender offer had been completed, provided that no higher offer was submitted.

Silvio Scaglia, who owns 18.75 per cent of Fastweb, said he was ready to stay on Fastweb’s board if requested by Swisscom.

Fastweb said its board had noted the “good development opportunities” in the Swisscom plan.

Carsten Schloter, Swisscom’s chief executive, admitted the telecoms group’s first big foreign takeover after a string of disappointments could trigger a bidding war.

Fastweb’s business is entirely in broadband and entertainment – areas acknowledged as among the most promising in an industry where traditional sources of revenue, such as fixed line calls, have come under fierce margin pressure.

Fastweb has spent €3bn on a high-speed fibre optic network now reaching 45 per cent of Italians, making the company a highly attractive medium-sized asset in a country offering great growth potential.

The group is Italy’s leading alternative broadband communications operator, with more than 1m customers. Sales last year amounted to €1.26bn, and operating profits reached €424.6bn.

“Fastweb is a real masterpiece of Italian entrepreneurship,” said Mr Schloter in a conference call.

Swisscom said the deal would boost its sales and operating profits by 20 per cent. Although Fastweb has yet to turn a profit, Swisscom said the deal would boost its free cashflow from 2008 and earnings per share from the following year.

The purchase will be one-third funded through treasury shares amassed during last year’s big buyback, with the remainder coming via debt.

Mr Schloter said the deal, which follows last December SFr4.25bn ($3.4bn) purchase of Vodafone’s 25 per cent stake in Swisscom Mobile, would still leave Swisscom with SFr2bn “headroom” for further transactions, although he indicated these would be smaller domestic takeovers, rather than large foreign deals.

Fastweb would remain a stand alone operation, retaining its technology and brand. But Mr Schloter stressed the scope for technological co-operation, with Swisscom potentially harnessing the Italian company’s expertise to confront its own challenges of declining sales and margins in its small and mature home market, being tackled by developing new broadband services.

Swisscom stressed the bid had the full backing of the Swiss government, which owns a majority of its shares. Government concerns, or outright hostility, to previous attempted takeovers in Austria and Ireland seriously damaged Swisscom’s credibility and prompted the departure of its former chief executive last year.

“The government is fully informed about all aspects of this transaction,” said Mr Schloter.

Swisscom shares were down just over 1 per cent at SFr454 in early trading, on fears the company might be overpaying and the overhang of the treasury stock.

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