Swiss Eircom takeover collapses

SWISSCOM’S takeover of Eircom collapsed spectacularly yesterday when the Swiss government pulled the plug by saying it would use its shareholding to block the deal.

Eircom’s share price went into freefall on the news, taking a 16% hammering to €1.94 that wiped €350 million off the value of the company and returned it to its original pre-approach level.

NCB Stockbrokers analyst Tricia McEvoy said: “Our fair value is €1.94 so we would be hoping for stabilisation around those levels. I guess the news out of Zurich is going to be very disappointing for Eircom shareholders and obviously we’ve seen the share retreat.”

A Swiss finance ministry spokesman said Swisscom had been instructed not to proceed with any major foreign takeovers for at least 12 months. The government holds a 66% stake in Swisscom but announced plans earlier this week to reduce its holding to just over 50%.

The spokesman said the Eircom deal was too risky to win the support of the government.

“Swisscom needs to take risks, but we are not prepared to take the risks with our money,” he said.

“If the government’s representative on the board says no and he holds 66% of the shares, then it is blocked.”

Swisscom’s share price reacted calmly to the news, falling less than 1%. News of the approach to Eircom had received a cool reception among the Swiss investment community and failed to provide any uplift in the share price.

Yesterday’s developments fuelled the unwanted reputation Swisscom management had begun to develop for being out of its depth in negotiating major takeovers.

The company has already failed in its attempts to buy the main telecoms operators in Austria and the Czech Republic and, until yesterday, was believed to be juggling three possible takeovers, having also been linked with Dutch heavyweight KPN and Denmark’s TDC.

Industry analysts slammed Swisscom management. One hedge fund manager told Reuters: “It is a very strange way of doing business. Swisscom is doing due diligence on several companies. You would expect them to have the okay from their main shareholder.”

Eircom said it had noted yesterday’s developments. “Eircom has no further information and is not in a position to make any further statement at this time,” it told the stock exchange.

Swisscom said it acknowledged the wishes of the government but that its board had “a legal obligation” to act in the best interests of all its shareholders.

* Additional reporting Reuters.