Fastweb sale on hold after new contract

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Senior executives at Fastweb are in favour of calling off moves to go private, as the Italian broadband company has just landed two large public sector contracts that could boost its annual revenues by about 40 per cent.

People close to the company said on Tuesday that the government contracts meant Fastweb’s financial profile and strategic position in Italy had changed. Although more than a dozen private equity firms have expressed an interest in buying the company, Fastweb could soon decide to stay public.

Fastweb has a market capitalisation of more than €3.25bn ($3.9bn) and has grown in just a few years to be the second-largest company in its sector after Telecom Italia. Last year it hired Deutsche Bank to look at strategy against a backdrop of consolidation in the industry and market rumours that rivals might be preparing a bid.

Selling to private equity firms was only one option under review but seemed the most likely given the level of interest. Fastweb, the people said, had not been expecting to have as much success in tendering for public sector work.

Deutsche is due to report to the board in the next few weeks and a final decision on ending the auction could be taken then. Neither Fastweb nor Deutsche would comment yesterday. Fastweb could still receive unsolicited acquisition offers.

A sale to private equity firms has been made harder by the gain of the government contracts, the people close to Fastweb said, because it would make it more difficult for the company to ensure stability of ownership, investment and management.

The award of the government contracts is subject to review. Fastweb’s bids were in some cases considerably lower than rivals such as Telecom Italia, and the company has to demonstrate it can make a profit.

One deal on data communication requires services to be provided to central
government departments around the country. Fastweb has 60 per cent of a contract worth €600m over five years and the ability to strike deals with regional and other government departments without tendering again.

The other contract covers a supply of voice telephony for central, regional and other government bodies. Fastweb is set to secure the whole of that deal, which is also worth €600m, but over two years.

Taken together, the work means a huge boost to revenues. Fastweb had revenues of about €1bn in 2005. Earnings before deductions were €300m. The company has invested heavily in its network in recent years but the current cycle of investment ends this quarter.

Silvio Scaglia, the company’s chairman and founder, owns 25 per cent of the group. He had expressed an interest in selling most of his stake but may now rethink.

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