Political worries scupper Swiss bid for Eircom

Swisscom has walked away from takeover talks with Eircom, the Irish telecoms provider, after the Swiss government scuppered the deal.

The Swiss telecoms giant, which is majority state-controlled, said the government's bar on it making foreign acquisitions had torpedoed the deal. "Under the circumstances Swisscom sees no possibility of a takeover bid," the company said yesterday.

The Swiss government, which holds a 66 per cent stake in Swisscom, blocked the company from acquiring overseas businesses two weeks ago, after announcing it was planning a full privatisation of the business. Swisscom said "public controversy" about the planned acquisition had caused too much uncertainty among shareholders, customers and employees.

The company revealed in November this year that it had entered talks with Eircom over a possible deal. Shares in Eircom - chaired by Sir Anthony O'Reilly, the chief executive of Independent News & Media, owner of The Independent - closed down €0.02 at €1.93. Phil Nolan, chief executive of Eircom, said: "The process with Swisscom has not diverted us from our underlying strategy of providing a full range of telecoms services in the most vibrant economy in Europe. Eircom is continuing to deliver on its key strategic objectives and retains its momentum."

The former Swiss telecoms monopoly is being forced to draw up a new strategy for the next four years to incorporate the privatisation of the telecoms industry. This is due to take at least a year. The Swiss government said it did not want to take on the risks of running foreign operations while Swisscom was still in state hands.

Jens Alder, Swisscom's chief executive, said foreign acquisitions were a vital part of the company's future and that the company had been looking to spend upwards of 1bn Swiss francs overseas. "The Swiss business cannot survive without investments abroad," Mr Alder said. Markus Rauh, the chairman of Swisscom, said he was "disappointed and filled with consternation" that the state refused to back growth abroad.

Mr Rauh called on the government to produce "clear-cut" statements on its proposals, to give companies certainty on how they can operate in the market.