Swisscom seeks growth abroad, plays safe with cash

Swisscom chief executive, Jens Alder, says the company is still on the lookout for foreign acquisitions Keystone

As one of Europe's only telecommunications firms with plenty of cash, Swisscom is looking around for new acquisitions.

After failing to find something worth buying so far, the former state monopoly is using its huge cash surplus to buy back ten per cent of its share capital and return up to SFr 4.3 billion ($2.55 billion) to investors.

But chief executive, Jens Alder, says the company is still on the lookout for foreign acquisitions. “We still have the same strategy,” he told swissinfo. “We have the capacity to invest – it’s just that right now there is nothing of interest to us.”

Some analysts have criticised Swisscom for being over-cautious – it has rejected over 100 potential acquisitions – but the company’s boss believes now is not the time to enter into risky ventures.

“We are in an extremely dynamic market. I’m absolutely positive that over the next few years, new opportunities will arise,” he added.

Strong finances

There are six major players in the European telecommunications market – the premier league, as Alder calls them. Swisscom is the biggest of the rest. It is also in a healthier financial position than many of its larger rivals.

Most are in debt, having paid an exorbitant amount for third generation mobile telephone licences. Swisscom obtained its licence for just SFr50 million, leaving its finances in a far healthier position than other former state monopolies.

Fewer mistakes

“We have made fewer mistakes than the others,” Alder told swissinfo, pointing out that over the past two years, its share price has held up better than those of its rivals.

“I’m very comfortable with our position, although the jury is still out on which strategy will be best over the next few years,” he said, pointing out that “these heavily indebted companies have much more growth opportunities than we have”.

Alder says Switzerland will remain the company’s number one priority, and one of his goals is to “invest in the sustainability of the business in Switzerland”.

But he acknowledges that “the chances of expanding in Switzerland are practically zero. That means the only possibility for growth is abroad.”

Fewer mistakes

“We have made fewer mistakes than the others,” Alder told swissinfo, pointing out that over the past two years, its share price has held up better than those of its rivals.

“I’m very comfortable with our position, although the jury is still out on which strategy will be best over the next few years,” he said, pointing out that “these heavily indebted companies have much more growth opportunities than we have”.

Alder says Switzerland will remain the company’s number one priority, and one of his goals is to “invest in the sustainability of the business in Switzerland”.

But he acknowledges that “the chances of expanding in Switzerland are practically zero. That means the only possibility for growth is abroad.”

Niche markets

Alder’s declared aim is to seek acquisitions in niche sectors which are too small to interest the bigger telecoms firms. But he is staying well clear of smaller direct competitors on the grounds that they are “too risky”.

The niche sectors he has identified are service providers and data transmission businesses. In the former category, Swisscom has already taken a 94 per cent holding in the German-based firm, Debitel. But otherwise, the search has proved fruitless.

“We have more cash than we need, we haven’t seen an opportunity to invest it, so we are giving the money to the people it belongs to – the shareholders,” Alder says.

The shares that Swisscom buys back will be scrapped, thus increasing the value of the remaining shares.

Public coffers

The company’s biggest shareholder, with a 65.5 per cent stake – is the Swiss government. It’s holding will fall to around 61.7 per cent after the buy back, which is expected to pump SFr 2.8 billion into the federal coffers.

There has been speculation that the government pressured Swisscom into launching the scheme in a bid to improve the federal finances after a bail-out package for the collapsed national airline, Swissair.

Alder denies that Bern had pressured Swisscom to launch the scheme because it wanted to improve the federal finances after a bail-out package for the collapsed national airline, Swissair.

“There was no pressure at all,” Alder says. “It would have been extremely unwise to put pressure on us. We try to maximise the value and in the end the government profits if they let us do that.”

Under the buy-back plan, shareholders will be allocated one free put option per share. For every ten put options, shareholders will be entitled to sell one share to Swisscom at a price of SFr580. Alternatively, the options can be sold on the stock exchange between February 22 and March 7.

by Roy Probert