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NewsGlobe: Financial
Swisscom to Buy Eircom?
Consolidation Fever Grips Europe
by Ken Wieland
According to media reports in Ireland, Swisscom (Switzerland’s national incumbent) is behind a preliminary takeover approach for Eircom (Ireland’s national incumbent) in a deal worth at least €2.5 bn.
The UK’s Financial Times also links Swisscom with Eircom today, but does so more tentatively – ‘Swisscom may lie behind €4bn Eircom bid approach’ runs its headline. The €4bn figure is derived from Eircom’s current enterprise value (worth about €4.4 bn, according to the Financial Times).
It is no secret that Swisscom is keen to expand beyond its small, low-growth domestic market where it faces stiff competition from cable operators. But so far, it has been unsuccessful. Merger talks with Telekom Austria collapsed earlier this year and it also lost out to Spain’s Telefonica in an auction bid for Cesky Telecom, a Czech operator. (Swisscom, reportedly, has €10bn set aside for acquisitions.)
For its part, Eircom has been subject to intense takeover speculation after Australian investment fund, Babcock & Brown Capital, acquired a 12.5 per cent stake in the Irish telecom group for €250 m in September 2005. A spokesperson for the fund was quoted at the time as saying: “We see this as a strategic shareholding in a company with robust fundamentals and a positive outlook which is not fully recognised by the market at the present time.”
The wave of cross-border consolidation that is sweeping across Europe – Telecom Italia/Liberty Surf (a Tiscali subsidiary operating in France), Telenor/B2, Telefonica/O2 and, perhaps, Swisscom/Eircom – is an indication, suggests Ovum (the analyst firm), that telcos have already picked the low-hanging fruit of cost-cutting and that shareholders are now looking for new sources of revenue growth.
“Quick and easy [cost-cutting] wins, such as capex cuts and staff reductions, have already been implemented,” reads the executive summary to Ovum’s report, Fixed Telco Cost Control and Capex Strategies. But with few organic growth opportunities left in domestic markets, incumbent operators, says Ovum, are deciding to use their “extremely strong cash flows” abroad. Theoretically, greater economies of scale and scope should help enlarged telecom groups compete better in price-competitive environments.
In other consolidation news, Deutsche Telekom issued a statement yesterday that it would not be making a bid for O2 amid fears that it would spark a costly bidding war. (Telefonica has already tabled a £17.7 bn bid for the UK’s second largest mobile operator.)
The cost-cutting phase for Deutsche Telekom is clearly not over. The German telecom giant also announced plans yesterday to cut 32,000 jobs over the next three years.
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