Analysis: The preliminary approach to Eircom from Swisscom is but the latest attempt at international expansion by Switzerland's state-owned telco. In the face of rising competition in its domestic market and falling profit margins, the company has been under pressure for some time to deliver a big strategic deal, writes Arthur Beesley, Senior Business Correspondent.
Two efforts in the past 18 months to extend its reach came to nothing. Talks to acquire Telekom Austria foundered last year. In addition, it was outbid last April in the race for the Czech operator Cesky Telecom.
The winner that time was Telefónica of Spain, the same company taking over the mobile operator O2. That deal confirms that European telcos are once again in play, with Eircom prominent among the possible targets.
Notice from Eircom's board yesterday that it had "received a preliminary approach from a potential offeror" follows a short-lived and inconclusive dialogue between the two companies earlier this year. Eircom had not at that time acquired the mobile operator Meteor, but the conclusion of that deal over the summer gave the Irish company access to one of Europe's most lucrative mobile markets.
This will not have gone unobserved by Swisscom, which has a strong balance sheet and money to spend. Spurned in its attempts to expand into the Czech Republic and Austria, the company said last August that it had a window of only 12-18 months to make a big acquisition or increase its share buybacks.
Swisscom had nothing to say yesterday about Eircom's notice to the stock exchange, which did not name the company. But the company's well-publicised efforts to expand made it the immediate topic of speculation in Dublin and its interest was confirmed by senior market sources.
Crucial at this stage is the fact that Eircom is not Swisscom's only acquisition target. The company has been mentioned as a suitor for Denmark's largest telco, TDC, but it is not in prime position. It faces rival bids from two powerful private equity consortiums. Due diligence has already begun in a process that could value the Danish operator at up to €12 billion.
Should Swisscom prevail against the odds in Denmark, it is doubtful that it would have the stomach to digest Eircom at the same time. Thus the Irish company may have to wait until the Danes have done their business to see whether a formal bid emerges from Bern.
With rival approaches a possibility, Swisscom might move swiftly into due diligence in the hope that it would avoid the possibility of another defeat in a telecoms market that is only beginning to simmer after years in the doldrums.
As the takeover games begin again at Eircom, quite what Swisscom plans for the Irish business is unknown at this time.
