Global Insight Perspective | |
Significance | Swisscom has launched its first foreign takeover bid more than a year after the Swiss government barred it from spending "Swiss taxpayers’ money" on overseas acquisitions. |
Implications | For Swisscom, the acquisition of FastWeb will offer a new growth opportunity beyond the limitations of its Swiss home market. |
Outlook | Nothing much will change as Swisscom has pledged to retain FastWeb's brand and management and will also work towards a realisation of FastWeb's ambitions to launch an MVNO in Italy. |
Switzerland's leading telecoms group, Swisscom, has launched a 3.7 billion euro (US$4.86 billion) "friendly" bid for the Italian alternative broadband provider, FastWeb. The move, an all-cash bid for 100% of FastWeb's shares, follows a due diligence exercise Swisscom conducted on FastWeb. It also marks a radical reversal in the strategy of the Swiss group, whose government had banned it from foreign acquisitions in 2005. Swisscom said it was pledging to commit itself long-term to the Italian company, eulogising the firm as a highly innovative company and a pacesetter in delivering broadband communications services over an IP network. FastWeb, which was formed in 1999, was the world's first provider of integrated voice, data and video services over an IP network. It is also Italy's second largest fixed-line operator, after the incumbent, Telecom Italia.
In a statement, Swisscom said the transaction is a "logical step in the implementation of its corporate strategy aimed at growing its core business and increase company value through new activities". Swisscom insisted that it was still focused on its Swiss home market but was equally seeking additional growth in the "highly attractive Italian market". It posited that FastWeb's three-to-five-year lead in rolling out new technologies, particularly its expertise in delivering multimedia applications via broadband, would be of immense benefit in the development of Swisscom's infrastructure. While promising to retain the FastWeb brand and management, Swisscom noted that the acquisition will boost its cash flows significantly, perhaps raising its revenues and EBITDA (earnings before interest, tax, depreciation and amortisation) by 20%.
Outlook and Implications
Swisscom's Radical U-Turn: Swisscom's u-turn on foreign acquisitions is a tacit admission that foreign investments represent the only realistic opportunity to boost growth, considering the dearth of growth opportunities on its Swiss home market. The company's management has always argued for more flexibility in acquisitions and for the Swiss government to reduce its stake and grip in the company. But the government has proven recalcitrant to all pleas, banning the company from foreign acquisitions in November 2005 and cancelling a privatisation plan in June 2006. The ban on foreign acquisition truncated Swisscom's bid to take over Ireland's incumbent telco, eircom, and the fallout between the Swiss government and the Swisscom management led to the departure of the then Swisscom chief executive. By June 2006, a thaw in the position of the Swiss government opened the way for Swisscom to state that it was seeking acquisitions in non-telecoms ventures and also to bid for Vodafone's 25% stake in Swisscom Mobile (see Switzerland: 19 December 2006: Vodafone Sells 25% Stake in Swisscom Mobile to Swisscom, 5 June 2006: Swisscom Eyes Non-Telecoms Acquisitions, 11 May 2006: Parliament Rejects Swisscom Privatisation, Switzerland:23 January 2006: Swisscom Replaces CEO and Switzerland: 28 November 2005: Swisscom Banned from Acquisitions Ahead of Privatisation).
FastWeb's Inviting Status: The confirmation of a bid for FastWeb is a testament to the company's suitability as one of the best acquisition assets in Europe's telecoms sphere. Formed in 1999, FastWeb has become the second-largest fixed-line provider in Italy, offering multimedia services over an IP network. Beside its highly successful telecoms services, the company has expanded into offering IT services, emerging as a major contender for Italian public IT contracts in 2006, when it trounced much-larger rivals to win a deal. The company's success has kept it continuously on the acquisition radar, from speculation of a merger with either Italian rivals, Wind and Tiscali, to outright takeover by private equity players or from the British giants, BT and Vodafone. The latter had been widely expected to be the most likely bidder following its existing partnership with FastWeb to distribute broadband services and the emerging expectation that Vodafone will host a FastWeb MVNO. Given Swisscom's pledge to retain the FastWeb brand and management, plus the Swiss group's existing relationship with Vodafone, a realisation of FastWeb's MVNO ambition seems probable (see Italy: 25 January 2007: Tiscali Eyes Sale of U.K. Unit to BT, Mulls Merger with FastWeb, 8 January 2007: Speculation Emerges on Vodafone, Private Equity Interest in FastWeb, 18 September 2006: Vodafone, FastWeb Sign Broadband Deal and 10 April 2006: FastWeb Trumps Telecom Italia, Wind, BT for Government Contract).