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DSL/vectoring/G.fast

Euro Stock Watch: Thomson Up, Tiscali Down

Video equipment vendor Thomson S.A. (NYSE: TMS; Euronext Paris: 18453) received a welcome boost Thursday as its stock leaped nearly 9 percent following the issue of a second quarter trading update. (See Thomson Issues Update.)

Shareholders at service provider Tiscali SpA aren't so happy, though, as the broadband operator's M&A saga shows little sign of reaching a conclusion, despite refuted suggestions that a deal is close to completion.

Lift for Thomson
The French company, a key supplier of customer premises broadband equipment, digital converters, and IPTV service delivery systems to major carriers, cable operators, and satellite TV companies globally, has had a challenging first half of the year, with first quarter revenues dropping by 18 percent year-on-year in real terms, to just over €1 billion ($1.6 billion). And the company's chairman and CEO left earlier this year. (See Turmoil at Thomson.)

Like many European companies with a lot of business in the U.S., Thomson suffered from the dollar's weakness -- it noted that if the euro/dollar exchange rate had remained constant, its first quarter revenues would have been higher, and would have trailed the previous year's revenues by 11 percent instead of 18 percent. Of equal concern at the beginning of the year was the poor performance of the vendor's access products (set-top boxes and home gateways), with Thomson noting, when it reported the first quarter's results in April, "reduced orders from broadband operator customers."

Thomson's lot has improved in recent months, though. It appointed a new non-executive chairman, former president of GE Capital and Citigroup, François de Carbonnel, and has retained its CFO, Julian Waldron, as interim CEO. And while today's trading statement shows that times are still tough, they're not quite as bad as expected. Thomson said its second quarter revenues will be down by between 5 and 6 percent compared with a year earlier (at those constant currency exchange rates), but that's better than the previous forecast of a 6 to 8 percent reduction.

That would put its second quarter revenues (at a constant exchange rate) at about €1.34 billion (US$2.1 billion).

In addition, Thomson said it won't be breaching the terms associated with its debt agreements, something that investors and analysts had been concerned about. The news sent Thomson's share price up by €0.24, or 8.54 percent, to €3.05 on the Paris Bourse by Thursday afternoon, though the stock had climbed as high as €3.25 earlier in the day.

The French firm has managed some notable contract wins recently, especially with Comcast Corp. (Nasdaq: CMCSA, CMCSK) in the U.S. and in Norway with incumbent operator Telenor Group (Nasdaq: TELN), and has high hopes that it can win further Tier 1 carrier IPTV work. (See Comcast Gives Thomson Nod for DTAs , Thomson, Ericsson Bag IPTV Deals, and IPTV Is Entering Phase II: Thomson.)

But it still has a long way to go appease its shareholders: Thomson's stock is down a whopping 80 percent compared with a year ago.

More trouble for Tiscali
Basically, Tiscali is having a bit of a nightmare. The company is trying to offload its U.K. and Italian broadband businesses (about 1.9 million DSL customers in the U.K. and 600,000 in Italy), but so far hasn't found a willing buyer. (See Tier 1 M&A Update and Tiscali Takeover Looms.)

Hopes of an imminent sale were raised this week by a Dow Jones report that suggested a sale (to an unspecified buyer, or buyers) was due to close by mid-August.

But the operator issued a statement late Wednesday saying: "Tiscali denies what has been reported by MF Dow Jones with regard to the alleged closing of the disposal process by mid August and warns the press agency from spreading further price sensitive information into the market not verified with the Company." (We're not sure what the "MF" stands for.)

That statement hit the operator's share price, sending it down 6.8 percent to €1.77 on the Milan exchange, valuing the whole company at just more than €1 billion (US$1.6 billion).

The carrier had hoped to have things tied up by June 30, its originally stated self-imposed deadline, but on that day it noted only that it had "received and discussed indications of interest by important industrial operators," and that "several hypothesis are still being analysed... [Tiscali] intends to continue the evaluation process of alternatives aimed at achieving the objectives of growth and value creation for the Group." (See Carphone Guns for DSL Top Spot.)

European broadband assets have been bought and sold regularly in Europe in the past few years, with other DSL players in the U.K. and Italy finding buyers. Tiscali, though, seems to be missing that magic M&A touch at present. (See Swisscom Bids $4.9B for FastWeb, Carphone Acquires AOL UK, and Telefónica Buys Be.)

— Ray Le Maistre, International News Editor, Light Reading

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