[IT] Swisscom Articles

viking

Several articles in today's Irish Times re Swisscom

Eircom is a willing partner for pushy Swisscom

Story of the Week: Company is something of a deal magnet, writes Arthur Beesley, Senior Business Correspondent

It goes on and on, the Eircom saga. Not 20 months have passed since the telco's second flotation in five years and the firm is once again on the blocks. The suitor this time is Swisscom, a company in a strategic cul-de-sac after the failure of its most recent attempts at international expansion. But already there are signs that it may have found a willing partner in Eircom.

Of course the former Telecom Éireann has been down this road before. A deal would bring its fourth change of ownership since 1999, when the then minister for public enterprise Mary O'Rourke ran a flotation that left tens of thousands of small shareholders nursing severe losses from their first flutter on the stock exchange. As investors rushed in with their life savings and borrowings, they were told that the value of shares can rise or fall. In the case of Eircom, they fell and fell. A bonanza it was not.

That was then. A company that struggled at first to find its feet outside the semi-State sector has become, with time, something of a deal magnet. As if addicted to action, Eircom was floated, taken private by Sir Anthony O'Reilly, and floated again. Along the way, it sold the mobile unit Eircell to Vodafone. Just weeks ago, it agreed to buy Meteor, the third mobile operator.

Now comes Swisscom, a suitor that must already know it is pursuing a partner that is more accustomed than most to the dating game. The big irony in the affair is that Swisscom is controlled by the Swiss government, owner of 66.1 per cent of its stock. If the deal is done, the inevitable upshot must be that Eircom's profits would ultimately find their way into the Swiss exchequer in the form of dividends. Such is the nature of the free market.

So what is the rationale behind a move that Eircom described, in circumspect stock market parlance, as "a preliminary approach from a potential offeror that may or may not lead to an offer being made for the company"? More important still, what's in it for Eircom? And what of its customers?

Swisscom's official spokeswoman maintained her silence yesterday, but the potential strategic advantages for the company are as clear as when it made an unsuccessful attempt to acquire Austria Telekom last year and followed that with a poorly executed bid for the Czech firm Cesky Telecom.

Cesky went to Telefónica of Spain, leaving Swisscom back at first base and increasingly desperate for a deal. The company has too much cash, falling profit margins and increasing competition on its own doorstep. Its staffing levels have been trimmed back, but it needs to spend money on a strategic deal soon or increase its share buy-backs.

It is for Eircom to make the next move. Its directors will meet sometime next week to discuss whether the company should agree to talk exclusively with the Swiss and open its books to them for a due diligence examination. The very fact that the board made a statement to the stock exchange on Wednesday, albeit in the face of a rising stock price, indicates that the company is taking the approach from Swisscom seriously.

According to senior market sources, the board is very likely to allow Swisscom proceed with due diligence on the basis that its expression of interest could give value to shareholders. Swisscom has indicated that it may pay between €2.40 and €2.50 per share for Eircom, a price that puts a valuation of at least €2.57 billion on a company worth €1.15 billion at the time of its second flotation.

While that alone might be persuasive, Eircom after the Meteor ideal is a heavily-indebted company. The company is cash-rich, but needs that money to pay its loans. It will need significant capital when it comes to build up Meteor, a company that is very much the laggard in the mobile market behind Vodafone and O2.

This is where the dalliance with Swisscom becomes particularly interesting. People at the highest level in Swisscom are believed to have had a tentative dialogue with their counterparts in Eircom earlier this year. While those contacts were inconclusive, the fact that Swisscom went ahead with its preliminary approach last week strongly implies that the company sees a future in Eircom's new mobile unit.

The Swiss may be thinking that the only way is up for Meteor. According to one Dublin analyst, they may also see greater potential to grow a broadband business that is far behind most others in Europe.

For all that, the attitude to the Swiss approach of the employee-controlled trust that owns 21 per cent of Eircom is not known. Neither is that of the Australian group Babcock & Brown, which built up a stake of 12.5 per cent in Eircom this autumn before it came fully into play. A bid would founder without the staff. Without Babcock & Brown, a complex task would be much more difficult.

So what does the market think? Analysts in Dublin were muted in their morning notes yesterday, although one said later that any deal would be purely financially driven from Swisscom's perspective. This observer said consumers shouldn't expect big improvements in the level of service from Eircom just because it was being run by the Swiss.

Rather, the Swiss would have a hard job maintaining the performance of the company's current management, who have proved adept at protecting Eircom's patch. "If anything, Eircom is a very well run company. I would question whether any new parent could come in and manage it better.

"The risks are, would they be able to deal with the regulator and the competition to the same extent as the current team can?"

For Citigroup in London, Eircom's proven ability to repel the demands of ComReg may yet come back to bite it. "Approval of the acquisition may be subject to the acquirer making major concessions on regulatory change. These changes could prove unpalatable, as they would threaten Eircom's profitability and cash flow."

On the up side, Citigroup said in a separate note that Swisscom was unlikely to face as much competition from either financial investors or other telcom operators in its pursuit of Eircom. "Swisscom will be less troubled than most suitors by the strategic pros and cons of acquisition, it said.

According to Citigroup, Swisscom's desire to leverage its balance sheet should outweigh "strategic concerns" about the absence of obvious efficiencies that could be derived from Eircom and limited potential for revenue growth from the fixed line business.

And what of the price? London analyst Michela Gerachi of Pali International said there was no real strategic or industrial logic behind a bid from Swisscom, besides the lower cost of capital that would come from the leveraging of its balance sheet. "It's expensive, on valuation, on multiples and on general comparisons with the industry."

While Swisscom has yet to declare its hand, all the signs are that it has already considered such issues in some detail. If the deeper arguments about the financial aspects of a deal cannot be made until a firm bid is out in the open, the Swiss have had plenty time to do their homework since they first met Eircom.

Looming in the background is the possibility that Swisscom might prevail, against the odds, in the race for the Danish company TDC and set aside its Irish ambitions. Already well advanced, that sale is at due diligence. TDC could be worth €12 billion, a price that would make Eircom difficult to digest at the same time.

That must remain a consideration for Eircom. But if the Irish company is not Swisscom's only interest, it is dealing with a serial bride in Eircom. It has been down the aisle before.

© ireland.com

viking

Investors dump Eircom after Swisscom shock

Siobhán Creaton

Market Report: The Swiss government's shock decision to block any plans by Swisscom to buy Eircom stunned the Dublin market and sent the Irish telecoms company's stock tumbling.

After some initial confusion, investors formed the view that Swisscom's takeover of Eircom which, up until Thursday, was seen to have been a done deal, was dead in the water and began to dump the stock.

Some 47 million shares were dealt in Dublin and, by close of business, Eircom had sunk from €2.30 to €1.94, down 36 cent, or 16 per cent. With US investors largely absent from the market due to the Thanksgiving holiday, there was some concern that the stock could suffer further on Monday.

viking

Swisscom's board in disarray over ban

Swisscom's state owners yesterday struggled to defend their decision to ban all foreign acquisitions, including Eircom, as signs increased of an impending clash at the Swiss telecoms group.

Speculation mounted about an imminent meeting of Swisscom's board and the possible resignation of leading staff, including Jens Alder, chief executive.

Swisscom officials declined to confirm the timing of any meeting, but said the new circumstances made clarification urgent.

The speculation followed Friday's statement by the Swiss government, which owns 66.1 per cent of Swisscom, that it would oppose attempts by the company to break out of its limited home market by buying counterparts abroad.

Swisscom has been in takeover talks with Eircom and also been linked with the purchase of TDC in Denmark. The company had been expected to table a bid for Eircom this week. News that the deal was in jeopardy sent Eircom's shares down by 16 per cent on Friday.

Eircom has so far held back from comment on the development, aside from noting Swisscom's position. The Eircom board is also expected to meet over coming days.

Hans-Rudolf Merz, Switzerland's finance minister, and Christoph Blocher, justice minister, tried in separate Sunday newspaper interviews to justify the ban, which has been met with astonishment in Switzerland and abroad.

Mr Merz, from the centre-right Radicals, claimed Swisscom should have known of the government's reluctance to back any moves threatening its steady dividend stream. Mr Blocher, driving force of the ultranationalist Swiss People's party, said the latest events underlined the need to remove Swisscom from state ownership as it ambitions were incompatible with its role as a dependable revenue source for the state.

The ministers' claims that Swisscom should have been aware of the government's position appeared unconvincing, given the group's attempts in recent months to identify acquisition targets. Even before matters came to a head over Eircom and TDC, the Swiss group was poised to buy Cesky Telecom in the Czech Republic, before being outbid by Telefónica of Spain.

A Swisscom official noted that the group's current strategy document, covering the period 2002-05, makes provision for foreign deals.

Additional Reporting : Financial Times
© The Irish Times

viking

Big Swiss cheese sees some holes in Eircom bid
Business Opinion
John McManus

The scene opens. The Swiss Federal Council - a seven member government cabinet - is meeting to discuss the future of state owned Swisscom. On the agenda is a proposal to mount a bid for Eircom.

First Minister: What do we know about this Eircom, and why does Swisscom want to buy it?

Second Minister (rolling his eyes): Why do they want to buy anything? They've too much money. The banks keep telling them they should buy something. It's called using your balance sheet more efficiently.

First Minister: Yeah, yeah. I presume the Irish Government has some sort of stake in Eircom. I quite like that Bertie Ahern chap, even if he is a socialist.

Second Minister: Nope. In fact they sold out years ago, just at the top of the telecoms boom. Made billions.

First Minister: And they didn't keep a stake? That's pretty odd for a country so dependent economically on its telecoms infrastructure.

Second Minister: Sure was, but they were mad for the cash.

First Minister: Anyway. So we are talking about a recently privatised state company. I presume we are looking at a pristine balance sheet that Swisscom can load up with debt and loads of fat to trim.

Second Minster: Actually somebody got there first. Tony O'Reilly, George Soros and a bunch of US venture capitalists took it private after the tech bubble burst, but not before Eircom had flogged off its mobile business to Vodafone.

First Minister: It doesn't have a mobile business?

Second Minister: Not exactly. But we'll come to that in a minute. Anyway, after O'Reilly and his chums made a bundle out of refinancing they floated it again. But they have had to pay pretty tasty dividends to get the punters on board.

First Minister: And the mobile business?

Second Minster: Oh yeah. They've agreed to buy the number three player in the market for something like €400 million. Had a rights issue, that sort of thing.

First Minister: Hang on. You are saying that Swisscom wants to buy a phone company that has been pillaged by US venture capitalists and is now spending huge amounts of money paying dividends when it could have been investing in networks. And to top it all, it's now paying a fortune for a small mobile phone company to replace a big one it sold a few years ago?

Second Minister: Yep. You've pretty much summed it up there boss. But I suppose that's why you are the First Minister.

First Minister: There must be something else. Is there a big broadband business?

Second Minister: They like to think there is and are always going on about it, but when you look at the league tables the Republic of Ireland is always at the bottom.

First Minister: Are we talking football now?

Second Minister: No. The broadband penetration league tables. Ireland is always near the bottom.

First Minister: Right. So what do they have going for them. Strong customer loyalty? Great brand?

Second Minister: Not really. Pretty much every household in the country lost money on the original flotation only to then watch O'Reilly and the rest make a fortune. There is not much love lost there. And then there is all the fighting!

First Minister: I thought that things were pretty much sorted in Northern Ireland.

Second Minister: They are. What I mean is that Eircom is always fighting with the regulator and refusing to give anyone else access to their networks. It drives the Government mental. They have already built some rival infrastructure and for sure they are going to let the power company get in on the act.

First Minister. So, on top of everything else, Swisscom wants to buy a business that is fighting with the Irish Government all the time?

Second Minister: Yes. And they would have to keep doing it, if there is any chance that the deal will pay for itself.

First Minister: Don't fancy that at all. That Ahern bloke will be bending my ear about phone bills every time I meet him.

Second Minister: Yeah. It will take more than a few bars of chocolate and a Cuckoo clock to keep him quiet.

First Minister: There is one thing I don't really understand. How did the Irish - what with their socialist prime minister and strong trade unions - let such an important asset get into this mess?

Second Minister: It's an amazing story really. They gave the workers a small stake before the first flotation - 5 per cent I believe. Anyway the unions embraced capitalism with gusto and by the time the company came back to market they had two board seats - including the deputy chairmanship - and a 21 per cent stake in the business. Been the kingmaker for the last few years and doing nicely.

First Minister: And they will go along with the sale to Swisscom?

Second Minister: As long as they get Swisscom shares in return.

First Minister: How many?

Second Minister: Not a lot. Maybe 5 per cent.

First Minister: Five per cent!

Second Minister: My God!!

First Minister: Get the Swisscom chairman on the phone. We have to stop them before it's to late.

© The Irish Times

Sponge Bob

viking wrote:

Business Opinion
John McManus

Who is this plagiarist , did I not point this out last Friday ?????????

"The thought that Biddy could end up with 5% of Swisscom (and a Board seat for Con Scanlon ) probably focused a few minds too "

OfflerCrocGod

That last article is totally priceless!

eircomtribunal

While there were some suggestions in the Irish media that there was a renewed chance for a Swisscom/eircom take-over, latest new from Switzerland leave little doubt that this avenue is closed.
See article in the influential Neue Zürcher Zeitung, where it says that the Swiss gov will not allow Swisscom to buy into foreign incumbents.
It is a German language only article: http://www.nzz.ch/2005/12/02/wi/newzzEGQP7FIB-12.html

P.

eircomtribunal

Sound advice to the Swiss gov decision makers in today's Sunday Times

Brian Carey: Swisscom should learn from Swissair crash

FIRST they knock us out of the European Championships, then the World Cup and now our glorious telecom company, sponsor of our inglorious football team, is not good enough for them. Can we ever learn to love the Swiss?
Feelings of national inferiority aside, the Swiss government was absolutely right to gag Swisscom management talks with Eircom. Political experience informed the decision, not xenophobia or a lack of ambition.

The experience of Swissair, whose Icarus-like demise was caused by overexpansion, still chastens those who govern the cantons. And the parallels are not only valid, they are downright eery.

Swissair was once known as the “flying bank”, such was its financial stability. The airline then decided to put itself at the centre of an alliance of smaller European airlines, taking stakes in Sabena and TAP and purchasing two regional French airlines. As a result of its “hunter strategy”, the small airline racked up huge borrowings, and in the wake of 9/11 collapsed under the strain.

The airline was grounded on October 2, and when the planes started flying again, pilots had to carry cash in satchels at the front of the plane to pay for fuel.

Cash-rich Swisscom’s interest in Eircom is based solely on using its juicy credit rating to lower the cost of the Irish telco’s enormous borrowings. The deal was financially driven and strategically blind.

There are no synergies. Neither is there any reason to believe Swisscom executives could run Eircom better than its current management. The Swiss bring no purchasing power on network equipment, no specific market expertise, no brand leverage à la Vodafone or even BT, no technological edge. They brought nothing, in fact, except that near-sovereign credit rating.

Just as it did not make sense for Swissair to buy a stake in a Portuguese airline, there would not be a great deal of sense in allowing a Swiss phone company, snuggling among the Alps, to purchase a telco on the outermost edge of the Continent.

And if Swisscom’s boss, Jens Alder, had planned to buy and buy and buy, in the fashion of Swissair, then the logic for any deal with Eircom disappears entirely. The Swisscom board has promised “intense discussions” with its government shareholders to get back here and consummate a deal, but the Swiss government would be plain cuckoo to fold.

P.

eircomtribunal

!![Link to German language only article]
In an Interview with the Neue Zürcher Zeitung Swisscom CEO Jens Alder speaks frankly about how their Eircom deal was pulled from them in the last minute ("Wie nahe war die Swisscom effektiv an einer Übernahme von Eircom?"
"Wir hätten das öffentliche Kaufangebot für Eircom diese Woche lanciert.") and confirms that he is, like the rest of Switzerland, still speculating how that had happened.("Haben Sie eine Erklärung dafür, warum der Bundesrat die Übernahme von Eircom plötzlich verhindern wollte?"
"Ich spekuliere genau wie der Rest der Schweiz.")

P.

Solair

It's obvious that Swisscom management wanted to purchase Eircom, KPN netherlands and the major Danish Telco (formely TeleDanmark). Their logic was to pick up small incumbants in very strong economies and build up a large telco.

There is still some logic in that approach as it would give smaller players far more bargining power with international network operators and equipment suppliers like ericsson, alcatel etc..

I doubt any of the european small players will continue to go it alone for much longer. Eircom's likely to be snapped up at some stage as part of some sort of bigger entity.

Despite all the moaning about eircom, financially and commercially they're in a very sound position and operating in an economy with vast telecommunications growth potential over the next few years.

Ireland's lagged behind the rest of europe in terms of DSL and other broadband technologies, eircom's foot dragging being part of this, but it's also arguably because eircom were never pushed into providing decent DSL due to lack of competition from cable and other platforms.

this has left a very large untapped broadband market and eircom has access to almost every home in the country via it's copper lines.

the recent purchase of meteor's probabally a good thing too. Meteor hasn't spent a fortune on 3G, which may yet be a good thing. It can provide very 3G like services over an EDGE network which can be built ontop of their existing GSM infrastructure or it could do a deal with one of the other 3G licence holders to allow it to piggy back 3G data services onto their networks. e.g. Smart or 3 would be likely candidates, perhaps in exchange for access to an enhanced and fully completed eircom Meteor GSM network.

It wouldn't be a bad buy, even if it's not too popular amongst boards.ie broadband users

paulm17781

What is EDGE capable of? I assume it's not as powerful as 3G? Did Meteor not start looking into EDGE years ago?

Sponge Bob

said they were DEPLOYING EDGE forthwith ......that was about 2 years ago.

paulm17781

Sponge Bob wrote:

said they were DEPLOYING EDGE forthwith ......that was about 2 years ago.

Wow, no wonder Eircon bought them. Similar roll out strategies.

watty

In reality GPRS ws not envisaged when 3G was designed. 3G video has been found to be poor, hence in UK and many other places 3G phone don't actually use 3G for broadcast video (the main phone market it turns out) but DVB-h

GPRS gives most of what 3G was touted for. 3G was over hyped and with cost of licences works out more expensive for user.

So in the end those that did NOT get 3G licences may be much better off.

3G has little or no impact on Txting or voice. Amazing most people get a phone to talk and txt. The case for 3G additional services has yet to be proven.

Video clips, graphics, games, ring tones etc expensivly dwnloaded by phone may eventually be seen as what they are, an un-needed rip off. If broadband, computer and integrated phone/pda/mp3/videoplayer devices penetrate more folks will provide their own phone content from TV, Satellite, PC, CD, DVD and home Internet download.

No one *NEEDS* the 3G operators, but an Eircom that had a *REAL* customer and National infrastructure focus and mobile handsets that operated on Metoer outside and Dect inside to the Copper would benefit the consumer the country and blow the competiton out of the water. Instead they continue to have a short sighted view of protecting Fixed line dialup revenue that is strangling the Countries IT infrastructure.

eircomtribunal

As there are still some hints in Irish newspaper headlines,
like "breaking news" on the Irish Times online: "14:04 New Swisscom strategy allows foreign acquisitions":

The Swiss government has made it absolutely clear today that Swisscom may not buy foreign incumbents.
From [German language] article in today's influential Neue Züricher Zeitung: http://www.nzz.ch/2005/12/21/il/newzzEHHDHE2Q-12.html

Der Bund untersagt es als Mehrheitsaktionär der Swisscom ausdrücklich, im Ausland Telekommunikationsunternehmen zu kaufen, die in der Grundversorgung tätig sind.

(= The gov as the majority share holder explicitly forbids Swisscom to buy foreign telecommunications companies that supply universal services)
P.

cgarvey

eircomtribunal wrote:

(= The gov as the majority share holder explicitly forbids Swisscom to buy foreign telecommunications companies that supply universal services)

So buying eircom is OK then? Any suggestions about eircom supplying anything universal (even the levels of competence or lies) are nonsense!

.cg