Swisscom gives Telekom Austria a merger call

Swisscom CEO Jens Alder has long been calling for a deal with Telekom Austria Keystone

Speculation is mounting that Switzerland’s main telecommunications operator, Swisscom, will shortly announce a merger with Telekom Austria (TA).

On Tuesday, Swisscom confirmed for the first time that it had held talks on a “potential merger”.

A terse statement said that after a request of the Austrian takeover commission, Swisscom was confirming that it had held talks with Austria’s privatisation agency, OeIAG, and TA.

Swisscom, which has long courted Telekom Austria, commented that no decision had yet been made regarding acquisition of shares or an offer to TA shareholders.

The Swiss company, which has cash to spare, has been interested in its Austrian peer for years but political hurdles in Austria and disagreements over the purchasing price have prevented any deal from going forward.

A Swiss analyst told swissinfo that Swisscom had indicated it was unlikely to target other companies for acquisition, signalling a “high interest level” in Telekom Austria.

But he made it clear it was premature to make a firm statement without knowing details of any possible transaction.

Survival

“I guess the benefit is that [Swisscom] would be a stronger company and have a larger geographic footprint to play in. It probably ensures the company’s survival better than if such an acquisition were not made,” the analyst said.

“Ten to 15 years from now, we could expect that many of the smaller incumbent telephony operations in Europe might disappear, simply because of the demands of having large economies of scale,” he added.

The share price of Telekom Austria has risen steadily over the past few months, and in particular over the past few days, with the markets betting that a deal might be in sight.

The OeIAG agency has commented that a sale to Swisscom is one of two options for disposing of the state’s 47.2 per cent stake in the country’s top telecoms operator.

The disposal, part of plans by Austria’s centre-right government to privatise state holdings, has met with opposition from unions, the Social Democrats and even some members of the two government parties.

Takeover

An Austrian politician on Tuesday said he could not support the sale of TA to Swisscom, since the latter is majority owned by the Swiss government.

But the increased value of the share price is seen as lending support to those who want to sell off the company at the highest possible price.

The Austrian privatisation agency has said it is considering an initial sale of 17 per cent over the Vienna bourse, with the rest to follow later, or a sale to a strategic partner.

“In this regard, talks have been held with Swisscom,” a statement said.

It did not clarify whether the talks were about a 17 per cent stake or more.

The agency’s supervisory board is due to discuss the possibility of a sale to Swisscom when it meets on Sunday.

Swisscom has insisted it is only interested in buying a majority stake in TA, although it would buy a minority stake initially if it received a guarantee that it could obtain a majority at a later date.

Offer

Reuters news agency, quoting sources close to the talks, reported on Wednesday that Swisscom was offering between €15 and €16 per Telekom share, a premium of ten to 17 per cent over Tuesday’s closing price of €13.63.

This is roughly what the Austrian privatisation agency has said would represent a fair price.

Faced with limited growth opportunities in its highly regulated home market, Swisscom last year offered €11 per share but was turned down by the OeIAG, which at the time wanted at least €13 a share.

swissinfo with agencies

Key facts

The Swiss government owns 62.7% of Swisscom, but has said it would like to reduce its stake.
First-half net profit at Swisscom fell by 20% to SFr757 million. The sale of loss-making German mobile phone company, debitel, hit the bottom line.
Telekom Austria is the biggest stock traded on the Vienna bourse.

In brief

Swisscom has confirmed it has held “merger talks” with Telekom Austria.

The Swiss operator has had its eye on the Austrian operator for years.

Austria’s privatisation agency, OeIAG, is charged with selling the state’s 47.2% stake in Telekom Austria by late 2006.

Unions and some politicians in Austria oppose any possible sale to Swisscom, fearing job cuts and a weakening of Austria’s competitiveness.