Swisscom Bids $4.9B for FastWeb
FastWeb's board suspended the operator's stock from trading on the Milan exchange Monday and called a meeting to discuss the offer of €47 ($61.79) per share, which is about 12 percent higher than Friday's closing price of €42.02.
Swisscom, which has already performed due diligence on FastWeb, is using its debt facility to fund the deal. News of the offer sent the Swiss incumbent's stock down nearly 1 percent to 454.5 Swiss francs ($370.55) on the Zurich exchange.
Swisscom needs the support of 50 percent plus one share of FastWeb's investors and already has the blessing of the Italian operator's board and its chairman and lead investor, Silvio Scaglia, who controls 18.75 percent of FastWeb's stock. It is expected to file a public tender for FastWeb shares on March 22. (See Scaglia Likes Swiss Offer and FastWeb Welcomes Swiss Bid.)
The Swiss carrier has been looking for an international acquisition for a number of years but has twice failed to seal a deal following exploratory talks. (See Swisscom Ends Eircom Talks and No Merger for Euro Carriers.)
Despite its roving eye, Swisscom's move for FastWeb has surprised some. "Cor blimey!" exclaims the telecom industry's most British commentator, Heavy Reading chief analyst Graham Finnie, who isn't surprised that someone has moved in on FastWeb but didn't expect it to be Swisscom.
"This is a very big deal for Swisscom, as FastWeb would be a major part of its business, and it would be its first really big foray abroad," says Finnie. "Swisscom is under a lot of competitive pressure at home, and this would keep its top-line revenue growing. I don’t imagine it will lead to much change to Fastweb’s strategy."
However, he adds, "it could raise some interesting regulatory issues in Italy, since Swisscom is not subject to European Union rules. It looks like a good deal for Fastweb, which had reached a point where it needed a purchaser. On the face of it, it looks like a good price."
Analysts at Dresdner Kleinwort believe the move "seems to make strategic sense" and "heightens the impression that European operators have little choice but to accelerate invasion of each others' turf." (See Telefónica Swoops In on O2, Telefonica Buys Cesky Telecom, FT Takes on Telefónica, Italians Invade Germany, TeliaSonera Goes 3G in Spain, and Italians Prep Big French DSL Rollout.)
The Dresdner team, in a research note issued today, also believe that, should the takeover be successful, Swisscom would "provide sufficient funds to strengthen FastWeb's competitive position in the Italian market in wireline and wireless." (See Fastweb Plays Wireless Waiting Game .)
So it looks as if it could be third time lucky for Swisscom's international ownership ambitions, but why FastWeb? Swisscom believes the Italian broadband services market has great potential, saying it will invest in FastWeb to maintain its strong position as the main challenger to Telecom Italia (TIM) , which admitted just last week that it is feeling the impact of intense competition in its home fixed-line market. (See Telecom Italia Reports '06 and T Italia Outlines Strategy.)
FastWeb now has more than 1 million customers hooked up to its broadband service, about 170,000 of which are using TV services, and boasts a 13 percent share of the Italian high-speed access market. Its 2006 revenues were €1.26 billion ($1.66 billion), while earnings before interest, tax, depreciation and amortization (EBITDA) were €425 million ($560 million), with a net loss of €124 million ($163 million). FastWeb does expect, though, to move into profit in 2007 and believes it's on course for a 30 percent increase in revenues to around €1.64 billion ($2.16 billion).
FastWeb's strength comes from ownership of its own access network and its experience in triple-play services, having launched initial TV-over-fiber services as early as 2001 and full-scale, widespread IPTV services over fiber and DSL in August 2003. (See TV Over DSL Over Italy .)
That IPTV experience is attractive to Swisscom, which noted that it expects the acquisition to produce "significant synergies" in terms of know-how and capabilities in triple-play network technologies and services. Swisscom launched its domestic IPTV service last year. (See Swisscom Finally Launches IPTV.)
In turn, Swisscom believes it can help FastWeb launch its mobile services and has identified Vodafone Group plc (NYSE: VOD), a partner to both Swisscom and FastWeb, as the likely company to deal with. Vodafone's name has cropped up in the Italian media in relation to today's news, but as a potential competitive bidder for FastWeb. Analysts, though, believe such a bid is unlikely.
— Ray Le Maistre, International News Editor, Light Reading