Swisscom ready to move on Fastweb

Swisscom is putting the finishing touches to a takeover offer worth more than €3bn ($3.9bn) for Fastweb, Italy’s second largest broadband operator, as Switzerland’s dominant telecoms company tried to reheat its international ambitions. Fastweb, with a market value of €3.1bn, has called a board meeting for Monday morning. People close to the talks said over the weekend that they expected a preliminary offer to arrive late on Sunday or tomorrow. Neither company would comment and people close to the talks stressed no offer had yet been received. However, they said Swisscom, which will announce its 2006 results on Tuesday, had completed a detailed study of Fastweb’s books and was moving towards a cash bid for all of the company. If successful, it would mark a breakthrough for Swisscom after years of thwarted ambitions. The cash-rich Swiss group has long sought growth outside its small, mature home market. However, attempts at sizeable deals in Austria, the Czech Republic and Ireland have all collapsed – mostly after political interference. The Swiss group is majority-owned by the state, and politicians have repeatedly blocked foreign expansion that could put the company’s high dividends at risk. Matters reached a head in late 2005, when an expected takeover of Ireland’s Eircom failed to materialise. Shortly after, the Swiss government vetoed any acquisitions of companies with statutory telecommunications responsibilities – leaving Swisscom scant opportunity for growth. The company evaded the corset last December, when it agreed to buy Vodafone’s 25 per cent stake in Swisscom mobile for SFr4.25bn ($3.4bn). Funding for any Italian venture should not be problematic, even after that deal, as Swisscom has only low gearing. Fastweb has long been rumoured as a takeover target, though it has stated recently that no firm offers have been received and that it was committed to organic growth. Fastweb shares closed at €42.33 on Friday. People close to the company said Swisscom’s approach was welcome, because the Swiss were perceived to have a long-term approach. Fastweb is seen as one of Europe’s most attractive medium-sized telecoms targets because its business is entirely in broadband. This sector is acknowledged as among the most promising in an industry where traditional revenue sources, such as fixed-line calls, suffer fierce competitive and margin pressure. Telecom Italia, for example, said last week it would be spending €6.5bn to develop its “next generation network” of enhanced broadband services. Deutsche Telekom has said it would push further into value-added services and markets outside Europe. Fastweb has in place its own network – which cost €3bn and reaches 45 per cent of Italians. At the end of 2006, it produced positive cashflow for the first time. Analysts cautioned that a Swisscom offer could start a bidding war. Fastweb is being advised by Deutsche Bank. Swisscom’s advisers are Credit Suisse and UBS. Source: No responsibility can be taken for the content of external Internet sites.

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