For years there had been speculation of a merger between Swisscom [SCMN.X] and Telekom Austria [TKA.VI], as the cash rich Swiss incumbent looked to expand out of its home market. However, the talks hit a deadlock last year and, with concerns over job losses, the political hurdles that overshadowed discussions back then could again cause problems.
Swisscom is in merger talks with Telekom Austria.
Swisscom has now confirmed that it is in talks with the Austrian government agency OIAG, on buying OIAG’s 25.2% stake in Telekom Austria. The stake is valued at roughly E1 billion ($1.22 billion). The OIAG is considering either selling its stake on the market, or an industrial solution together with a strategic partner.
Last year Telekom Austria posted a net profit of E134 million ($165 million). It also has 4.5 million mobile customers in Austria. It is clear that Swisscom is the stronger of the two. In March it posted a very healthy set of results, reporting net profit up 90.4% at CHF1.57 billion ($1.25 billion) for 2003.
Swisscom has been seeking investment opportunities after it sold its German subsidiary, mobile operator Debitel, earlier this year. The acquisition of Telekom Austria makes sense for Swisscom, which is sitting on an uncomfortably large cash pile. Strategically, Swisscom needs to acquire some foreign assets in order to reduce its exposure in its home market.
Unlike many of its European competitors, which embarked upon expensive expansion policies during the late 1990s, Swisscom decided to opt for the conservative route and concentrate on its core Swiss market. This meant that economically the telco rode the downturn better than most and emerged with very little debt and is consequentially cash rich. However, this conservative policy did have its downside, as Swisscom has limited expansion opportunities.
The merger also still faces some political hurdles. Most Austrians are not keen to see their national phone company fall into the hands of their Swiss neighbor, especially given the fact that Swisscom is still controlled by the Swiss government with its 62.7% stake.
While the center-right Austrian government is committed to privatizing state holdings, there are concerns from unions over job losses. The opposition party, the Social Democrats (and even some members of the two parties forming the government) are also opposed to the disposal.