Try the new FT.com

October 23, 2005 4:14 pm

Swisscom’s search for the right partner

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

You are a former monopolist in a small country. Your market is being speedily liberalised, prompting competition and lower prices. Productivity improvements and job cuts have maintained your profits, while innovation has supported sales.

But now, your options are limited.

Foreign expansion has been unsuccessful, resulting in burned fingers on previous deals. Worse, majority state ownership has reinforced the native conservatism of your board, prompting a strategic cul de sac.

Welcome to the world of Swisscom, the Swiss telecoms group at the centre of speculation about potential acquisitions in Denmark, Ireland, Austria – or virtually anywhere else in Europe where suitable assets may be for sale.

In the past month, the Swiss group has been touted as a suitor for TDC, the Danish operator being courted by private equity funds. Separately, it has been named as a potential buyer of Eircom in Ireland and even reported to be looking again at neighbouring Telekom Austria after an abortive bid last year.

The speculation follows Swisscom’s failure to win Cesky Telecom in the Czech Republic earlier this year. In spite of being considered the front runner, and having made a full offer, Swisscom was outbid by Telefónica of Spain. 

“Basically, they’re desperate,” says one investment banker who knows the company well. 

This month, the pressures on Swisscom increased as Cablecom, its most serious domestic rival, cancelled an initial public offering in favour of a last minute sale to Liberty Global of the US. The deal will significantly raise the financial firepower of Cablecom, now increasingly straying into Swisscom’s core territory of fixed and mobile telephony.

Cablecom claims the lion’s share of the fast-growing market for high-speed internet connections and is gearing up marketing efforts to use its expensively-built high capacity network for voice traffic, while also pursuing innovative ideas to enter the mobile market. Swisscom’s efforts to enter Cablecom’s core television transmission business have, meanwhile, failed to get off the ground.

While that background explains the ubiquity of Swisscom’s name as a potential buyer in Europe, bankers say none of the deals that may be on the table looks convincing – and certainly not cheap.

A second tilt at Telekom Austria, mooted this summer after the one-year limit on another takeover bid expired, seems virtually inconceivable. The sharp rise in the Austrian group’s share price would make a deal much more expensive – although still within Swisscom’s €10bn to €12bn ($12bn-$14.3bn) range. But Austrian political opposition, that helped to scupper the controversial plan in 2004, would be even higher now, just one year before national elections.    

“The idea of buying Eircom is so far fetched I could almost believe it,” says one hedge fund investor of another scenario doing the rounds. “It’s unlikely, but you could construct a logic,” adds a well-placed investment banker.

Neither company has commented on the rumours. But speculation about Swiss interest has died down after the revelation that the stake buying that had driven up Eircom’s share prices stemmed from Australia, rather than Switzerland.

That leaves TDC, the most convincing of the options on grounds of size and range of activities. Cultural affinity adds attractions to a Swiss-Danish deal. Coincidentally, Jens Alder, Swisscom’s chief executive, is half Danish and speaks the language.

Theoretically, Swisscom should be able to outgun the private equity groups that have approached TDC, on the grounds of potentially greater synergies. But distance and lack of obvious overlap leaves little scope for savings in this case, potentially putting Swisscom on a par with the other buyers.

“Fundamentally, it would come down to the cost of capital,” says the hedge fund manager.

One significant obstacle is the fact that TDC controls Sunrise, Switzerland’s second-biggest mobile player, and a direct Swisscom rival, raising cartel constraints. 

“Conceptually, it could be reasonable,” says another investment banker active in telecoms. But pushing valuations even higher than for Cesky Telecom would be “shocking”, adds a counterpart from another bank. 

Copyright The Financial Times Limited 2017. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE