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NewsGlobe: Financial
Swiss government Clips Swisscom’s Wings
Block on Swisscom Acquisitions Criticised by Investors
by Ouida Taaffe
Swisscom, the Swiss incumbent operator that is 66.1 per cent government owned, has long stated an intention to expand into markets beyond its own borders. However, the Swiss Federal Council (the Swiss executive government) announced on Friday that it will block any attempt by Swisscom to buy into foreign operators. Markets reacted negatively to the news. Swisscom’s stock fell 1.8 per cent in New York on Friday and was down 3.12 per cent in Zurich by mid-afternoon on Monday.
The Swiss shareholders’ protection association (the Schutzvereinigung Schweizer Anleger – SVSA) has, according to the Swiss press, criticised the Federal Council for having a direct impact on the operations of Swisscom at “the most inappropriate time”.
The announcement by the Federal Council certainly came as a surprise to many people in the market. This is because Swisscom has not only made no secret of its plans to buy another operator - and made bids for both Telekom Austria (which remains in state hands) and Cesky Telecom, of the Czech Republic (sold to Telefonica) - but because it is currently in talks on acquiring Eircom, of Ireland and may be interested in TDC, of Denmark.
However, the Swiss government has actually wanted to clip Swisscom’s acquisition wings for some time, according to Panagiotis Spiliopoulos, an equity analyst with Bank Vontobel in Zurich. He points out that it was the Swiss Federal Council that vetoed Swisscom’s take-over of Telekom Austria, not, as was generally reported, the Austrian government. What has made the Federal Council become more explicit in its rejection of Swisscom’s expansion policy may be the increasing polarisation of the council itself, Spiliopoulos believes. “[However], the main reason the government is blocking foreign acquisitions,” he says, “is that it fears that, by making risky foreign buys, Swisscom could lower the value of its shares. There is also concern that it could run into the same difficulties as Swissair.” Swissair, the Swiss flag carrier, filed for bankruptcy in October 2001 having made a series of small-scale take-overs in loss-making enterprises. Swisscom has insisted that it is interested in buy-outs of profitable ventures.
Does Swisscom actually need to make an acquisition? “If they want to grow and improve their financial metrics, yes,” says Spiliopoulos. Swisscom is currently losing “a couple of thousand” consumer access lines a month as competition from mobile and cable operators heats up - though the company is holding its own in enterprise services. In the first nine months of 2005, Swisscom saw its net revenue fall 3 per cent year-on-year to CHF7.29 bn (US$5.54 bn)
However, even if Swisscom is under pressure to find new markets, Spiliopoulos points out that there is very little that the Swisscom management can do to circumvent the government’s decision. Any shareholder with a stake of more than 10 per cent has the right to call an extraordinary general meeting and change the board.
Still, the company itself did appear to suggest that it might try to go its own way. “The government representative's instruction does not relieve the board of directors nor the executive board from their legal obligation to responsibly perform their duties in the best interests of the company and all shareholders,” it said in a statement, adding that the board “will review the proposals made by the government representative along with all other corporate, financial and legal issues related to the matter in the course of its regular decision-making process”.
“There is a lot of uncertainty around Swisscom,” says Spiliopoulos. “Whether or not the CEO stays on board, if this will be the final say, or if there will be more discussions.”
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