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Swisscom to bid $4.9 bln for Italy’s Fastweb

The state-controlled Swisscom said on Monday it would offer 47 euros per share for the firm, a 19 percent premium to Fastweb’s price last week.

Fastweb’s board aimed to review the offer on Monday as two possible counterbidders -- Vodafone and Sky Italia -- signalled they were not interested.

The bid forms the first major foray abroad for Swisscom since the government imposed restrictions on foreign purchases in 2005, blocking a bid by the company for Ireland’s Eircom.

A Fastweb takeover would help fortify the former monopoly’s profile with the latest optic-fibre, voice and broadband technologies and strengthen revenues, which are stagnant at home, with rising income from neighbouring Italy. It would also see yet another Italian telecom firm pass into foreign hands.

Swisscom shares eased about 1 percent to 454.25 francs as investors fretted about changes to the firm’s dividend and share-buyback plans. Fastweb shares were suspended pending a company announcement.

Swisscom said the deal was contingent on obtaining 50 percent plus 1 share in Fastweb. Swisscom would fund the deal via debt and by placing up to 4.9 million shares held in its treasury.

Swisscom Chief Executive Carsten Schloter said Fastweb would remain completely independent. ‘We won’t centralise any kind of function. We will continue to invest in Italy,’ he said in a conference call.

Once the deal was completed, Swisscom would change its payout policy, ending share buybacks with the exception of the 500 million-franc buyback planned for 2008. After that, the company would pay dividends amounting to about half of its net income.

Swisscom said the deal would start boosting the combined group’s earnings per share starting in 2009 and that it would boost its revenues and core profit -- earnings before interest, tax, depreciation and amortisation -- by about one fifth.

‘The price looks fair at first glance especially when considering that the transaction also optimises Swisscom’s balance sheet structure,’ analysts at Germany’s WestLB said in a note to clients.

‘However, we think that the changes in the payout policy might hurt Swisscom’s share prices over the next coming weeks,’ WestLB said.

But other analysts said Swisscom’s offer was expensive, with one calculating that the offer valued Fastweb’s equity and debt (enterprise value) at around 10 times forecast core earnings (EBITDA) compared with around 9 times for peers and around 7.5 times for the wider European telecoms sector.

Alternative carriers across Europe such as Fastweb, Iliad and Neuf Cegetel in France have been trading at higher multiples than incumbent operators, helped by greater prospects of consolidation among them.

Fastweb reaction awaited

Shares in Fastweb, which expects to post its first profit in 2007, rallied nearly 7 percent on Friday as market talk swirled of an imminent foreign bid for Italy’s number-two fixed-line telecoms operator.

Sources close to Vodafone and Sky Italia told Reuters they were unlikely to launch counterbids.

Fastweb has a market share of about 13 percent in Italy’s broadband market, second to Telecom Italia, which dominates the segment with a combined retail and wholesale market share of 80 percent.

If successful, Swisscom would join a list of foreign operators to enter the Italian market in recent years.

Fixed-line and mobile operator Wind is owned by Egyptian businessman Naguib Sawiris, who bought it from utility Enel. It has about 19 percent of the mobile market.

Vodafone and Hutchison Whampoa Ltd’s 3Italia also compete in the mobile business, while Cagliari-based Tiscali runs broadband and Internet services.