Swisscom has already publicly admitted it is in takeover talks with Irish carrier Eircom Group Plc. It is also thought to be the running for TDC AS, the Danish incumbent carrier, which is also being stalked by two private equity outfits, although the Swiss carrier has so far refused to confirm this. There are reports that Swisscom could team up with one of the private equity groups for a bid of roughly $12bn for TDC, but might also launch its own separate bid.
The Swiss Finance Minister, Hans-Rudolf Merz, announced that his Ministry plans to change Swiss telecommunications law in order to be able to reduce its stake in the incumbent operator to below 50% plus one share. This is the first time the Swiss have talked about reducing their holding in the carrier to a minority stake. Currently, the state holds a 66.1% stake in the business, which is worth about CHF 17bn ($12.91bn).
The rationale behind the state sell-off is that it would remove business uncertainties and eliminate any conflict of interest between its role as main shareholder and regulator of the telecoms sector. While this sounds fine in practice, in reality things are different because the complex political system in Switzerland means a sale would not be guaranteed and would take several years to achieve.
Politically, it is thought that the Swiss center-right Radicals and the ultra-nationalist Swiss People’s party are broadly in favor of the sell-off, but the move is likely to be opposed by the Socialists and the Christian Democrats.
If the disposal did get parliamentary approval, it would still face a vote by the Swiss electorate who are likely to eye with little enthusiasm possible job cuts, changes to service standards, or a potential foreign takeover. The unions will also not be easy to persuade.
Despite this, the Swiss government believes it can complete parliamentary preparations in 2006 with a view to presenting legislation in 2007. There would then be a referendum, all of which means that a sale might not happen before 2008.
The Bern-based carrier is desperate to expand into foreign markets because it faces fierce domestic competition in a domestic market that is largely saturated and offers very few growth prospects. It is also dealing with growing competitive pressure on prices, as well as regulatory changes.
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The news of the sale of the stake is ironic considering that the fact that Swisscom was still government-owned was one of the principle reasons why Austrians were so against its long-mooted takeover last year of neighboring national carrier Telekom Austria AG for 7.7bn euros ($9.5bn). That deal was scrapped due to political pressure from the Austrian government as well as trade unions, who didn’t see why they should allow their national carrier to be sold to a neighboring carrier that was still owned by the Swiss government. Swisscom also failed in its attempt to acquire the Czech carrier Cesky Telecom AS for $3.3bn in April.
The Swiss carrier was floated in October 1998, and unlike many of its European competitors that embarked on expensive expansion policies during the late 1990s, Swisscom decided to opt for the conservative route and concentrate on its core Swiss market. This meant it rode the downturn better than most, emerging with very little debt and cash rich. However, this conservative policy did have its downside in that Swisscom now has limited expansion opportunities.
For the nine months ending September 30, net income increased to CHF 1.65bn ($1.26bn) from CHF 1.14bn ($871m). Sales fell 3% to CHF 7.3bn ($5.57bn) from CHF 7.52bn ($5.74bn) in the year-ago period.
