Government offers Swisscom acquisition concession
Published:23-December-2005
By BR staff writer
Swisscom AG, the Swiss carrier whose acquisition strategy now lies in tatters following the unexpected decision late last month by its largest shareholder to block any foreign takeovers, has now been offered a modest concession by the Federal government.
The Swiss government has told the Swiss carrier that it can purchase foreign firms, but it will not permit it to take over a foreign business that is a provider of basic telecoms services in another country. The concession ends the earlier total ban on all foreign purchases.
Swisscom will also only be permitted to borrow up to 1.5 times its total earnings to fund deals -- equivalent to CHF 5bn ($3.18bn), under the new four-year strategy for the firm that has been approved by the Swiss cabinet.
"The new goals aim to allow Swisscom to take stakes in foreign telecommunications companies as long as they support the company's core business at home, or have another strategic-industrial logic," said Swiss transportation and communications minister Moritz Leuenberger in a statement.
"It's a tight corset, but we have decided to privatise the company in the long term, and there would be no sense in following another strategy in the meantime," he said.
Earlier this month Swisscom had warned the Federal Council that the carrier's credibility was on the line after the ban announced by the government. Swisscom's chairman and chief executive accused the government of political interference and warned of resignations if the crisis at the company was not resolved swiftly.
As a result, Swisscom was forced to break off talks with the Irish carrier Eircom Group Plc. The Bern, Switzerland-based carrier was also in the frame to acquire the former Danish incumbent TDC AS, which has since accepted a takeover offer from a group of London-based private equity firms.
It is generally believed that Swisscom was the victim of political infighting in the country with its coalition government. The Swiss government had previously announced that it would be reducing its stake in the carrier to give the carrier "greater operating flexibility
The decision by the Swiss government, which holds a 66.1% stake in the carrier, stunned industry watchers at the time. Swisscom is facing a saturated domestic market and desperately needs to expand beyond its borders if it is to have any realistic growth prospects.
Indeed, Swisscom has made it repeatedly clear that foreign acquisitions are crucial to its future, and the carrier had set aside approximately CHF 1bn ($757m) for just such a purpose.
In a statement, Swisscom acknowledged the government's reversal but said it allowed only limited flexibility in terms of acquisitions.
Unfortunately, the concession by the Swiss government may come too late. It is unclear whether the management team at the carrier will choose to operate under such rigid guidelines, and although the decision allows Swisscom to acquire a stake in a foreign telecom operator, it does not give it the necessary operating freedom to expand.
