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5 Business combinations and disposal of subsidiaries

Business combinations in 2015

In 2015, Swisscom made payments, net of cash and cash equivalents acquired, totalling CHF 64 million for the acquisition of subsidiaries. Of this amount, CHF 8 million relates to deferred consideration arising on business combinations in prior years and CHF 56 million for subsidiaries acquired in 2015.

Business combination search.ch Ltd

In May 2014, Swisscom and Tamedia agreed to contribute their companies Swisscom Directories Ltd (local.ch) and search.ch Ltd to a jointly-held subsidiary company. Swisscom holds 69% of the capital of the joint company, with Tamedia holding the remaining 31%. With the on-line directory platform local.ch and the Local Guide telephone directories, Swisscom Directories Ltd is a leading company in Switzerland in the field of advertising and the operation of directories. Search.ch Ltd (search.ch) is a leading Swiss search and information service. With the merger of Swisscom Directories Ltd (local.ch) and search.ch Ltd, there is born a comprehensive Swiss directory and information platform for private individuals, companies and public administrations as well as an important advertising partner for small and medium-size companies.

The transaction was consummated at the beginning of July 2015 following consent to the transaction given by the Federal Competition Commission (Weko). Swisscom granted Tamedia a put option and Tamedia granted Swisscom a call option for the 31% share of Tamedia which both can be exercised as from the third year following the consummation of the transaction. The fair value of the put option amounts to CHF 222 million. This amount was recognised as a financial liability in the third quarter of 2015. The fair value of the put option corresponds to the purchase cost for the acquisition of search.ch Ltd. The allocation of the acquisition costs over the net assets of search.ch may be analysed as follows:

In CHF million   2015
     
Purchase price allocation of search.ch AG  
Cash and cash equivalents   12
Other intangible assets   42
Other current and non-current assets   10
Defined benefit obligations   (5)
Deferred tax liabilities   (4)
Other current and non-current liabilities   (20)
Identifiable assets and liabilities   35
Goodwill   187
Purchase consideration   222
Cash and cash equivalents acquired   (12)
Issuance of equity instruments   (222)
Total cash inflow   (12)

The gross amount of the trade receivables acquired amounts to CHF 7 million. At the time of the acquisition, it was anticipated that of this amount, CHF 1 million was non-collectible. No transaction costs arose in connection with the acquisition of search.ch. The principal reasons for the recognition of goodwill are the anticipated synergies from distribution as well as additional market share. In 2015, there resulted additional net revenues of CHF 18 million and a profit of CHF 4 million from this business combination. On the assumption that the subsidiary acquired in 2015 had been included in the consolidated financial statements as from the date of 1 January 2015, there would have resulted consolidated pro-forma net revenues of CHF 11,693 million and a consolidated pro-forma net income of CHF 1,363 million.

Other business combinations in 2015

In 2015, Swisscom acquired the entire share capital of two companies, the Veltigroup group and H-Net Ltd. Furthermore, Swisscom acquired in 2015 51% of the share capital of Mila Ltd. With the acquisition of Veltigroup, Swisscom consolidates its ICT portfolio for business clients and its presence in Western Switzerland. Veltigroup is a leading ICT service provider and offers companies a complete ICT service offering from infrastructure through to end-customer services and solutions. Through the purchase of H-Net Ltd, Swisscom strengthens its portfolio in the field of healthcare. H-Net Ltd is one of the leading companies in the fields of administrative and medical data exchange in healthcare. H-Net Ltd was merged with Swisscom Health Ltd following acquisition. The purchase of Mila Ltd is designed to make a contribution to all three strategic market thrusts of Swisscom (client orientation, innovation, operational excellence).

In addition, Swisscom acquired the Avanti business from HP Switzerland. Avanti is an operations control system and back-office for emergency response organisations. Furthermore, Swisscom acquired the Swiss business of World Television (Switzerland) Limited. Through this, Swisscom Event & Media Solutions could further expand its existing offering in the field of video and streaming services thereby becoming the Swiss market leader in the field of on-line video communications and live-streaming for corporate customers.

The other subsidiaries and business areas acquired in 2015 are regarded as immaterial business combinations and are thus presented on an aggregate basis. The aggregate allocation of acquisition costs over the net assets acquired may be analysed as follows:

In CHF million   2015
     
Purchase price allocation of other business combinations  
Cash and cash equivalents   21
Other intangible assets   60
Other current and non-current assets   52
Defined benefit obligations   (25)
Deferred tax liabilities   (7)
Other current and non-current liabilities   (58)
Identifiable assets and liabilities   43
Share of identifiable net assets attributable to non-controlling interests   (8)
Goodwill   68
Acquisition costs   103
Cash and cash equivalents acquired   (21)
Deferred payment of purchase price   (14)
Total cash outflow   68

The gross amount of trade receivables acquired totals CHF 34 million. At the time of the acquisition, it was anticipated that all of these receivables were considered collectible. No transaction costs arose in connection with the acquisition of the remaining subsidiaries acquired in 2015. The principal reasons for the recognition of goodwill are the anticipated synergies, the additional market shares and the qualified workforce. In 2015, there resulted additional net revenues of CHF 139 million and a net income of CHF 3 million from these business combinations. On the assumption that the subsidiaries acquired in 2015 had been included in the consolidated financial statements as from the date of 1 January 2015, there would have resulted consolidated pro-forma net revenues of CHF 11,679 million and a consolidated pro-forma net income of CHF 1,361 million.

Business combinations in 2014

In 2014, Swisscom made payments totalling CHF 305 million for the acquisition of Group companies. Of this amount, CHF 288 million relates to the takeover of PubliGroupe SA in September 2014.

Public takeover of PubliGroupe SA

In June 2014, Swisscom launched a public takeover bid for PubliGroupe SA (PubliGroupe). Swisscom offered the shareholders of PubliGroupe a price of CHF 214 per share, which equates to a total purchase consideration of CHF 474 million. Upon expiration of the offer period on 25 August 2014, Swisscom held 98.37% of the share capital of PubliGroupe and the takeover was consummated on 5 September 2014. The purchase consideration for the 98.37% was CHF 466 million. Because the threshold of 98% within the framework of public takeover bid was exceeded, Swisscom was able to initiate a procedure to have the remaining non-controlling interests cancelled in consideration for the payment of the offer price of CHF 214 per share. The purchase consideration of CHF 8 million for the remaining 1.63% of the share capital was recognised as a liability in the third quarter of 2014. Settlement of the deferred portion of the purchase price took place in the second quarter of 2015.

The takeover of PubliGroupe was primarily designed to achieve full control over and further develop the Local Group. PubliGroupe is active primarily in the Swiss directories market and owns a 51% shareholding in LTV Yellow Pages Ltd and a 49% shareholding in Swisscom Directories Ltd and local.ch Ltd (Local Group). Prior to the acquisition, Swisscom had held a 49% interest in LTV Yellow Pages Ltd and a 51% shareholding in Swisscom Directories Ltd and local.ch Ltd. Until then, Swisscom Directories Ltd and local.ch Ltd were treated as fully consolidated subsidiaries in the consolidated financial statements of Swisscom and LTV Yellow Pages Ltd was accounted for as an associated company. Of the purchase consideration, an amount of CHF 162 million represents the acquisition of the outstanding non-controlling interests in Swisscom Directories Ltd and local.ch Ltd. As Swisscom held a controlling interest in Swisscom Directories Ltd and local.ch Ltd prior to the takeover, the transaction is dealt with in shareholders’ equity. The carrying amount in Swisscom’s consolidated financial statements of its 49% shareholding in LTV Yellow Pages Ltd at the time of the takeover was CHF 26 million. In accordance with IFRS, the difference of CHF 82 million between the carrying amount and the fair value was recognised as other financial income in the third quarter of 2014. Following the takeover, LTV Yellow Pages Ltd and local.ch Ltd were merged into Swisscom Directories Ltd. PubliGroupe holds, in addition, shareholdings in media companies and media service providers as well as being the owner of real-estate properties. Swisscom plans to sell the shareholdings and the real-estate properties to the media companies. For further information see Note 22. Swisscom will examine all options regarding the further shareholdings. By the end of 2014, various investments were sold to media companies for a price of CHF 57 million.

In accordance with IFRS, the acquisition costs for the takeover of PubliGroupe amounted to CHF 420 million. This is comprised of the purchase price for PubliGroupe shares of CHF 474 million and the fair value of the previous 49% participation in LTV Yellow Pages Ltd of CHF 108 million, less the fair value of the acquired non-controlling shares of Swisscom Directories Ltd and local.ch Ltd of CHF 162 million. The business combination was accounted for provisionally in the consolidated financial statements as at 31 December 2014, since not all the necessary information concerning the acquired foreign operations was available at the time of preparing the consolidated financial statements.

­Swisscom’s consolidated financial statements as of and for the year ended 31 December 2014 reflect additional net revenues of CHF 41 million as well as net income of CHF 6 million since the takeover of PubliGroupe on 5 September 2014. On the assumption that PubliGroupe had been included in the consolidated financial statements as from 1 January 2014, there would have resulted consolidated pro-forma net revenues of CHF 11,753 million and a consolidated pro-forma net income of CHF 1,712 million.

The definitive purchase price allocation for the PubliGroupe takeover was completed in the third quarter of 2015 and the prior year’s figures were restated accordingly. The reconciliation of the provisional and definitive price allocation is set out below:


In CHF million
  Reported
provisionally
 
Adjustment
 
Definitive
             
Purchase price allocation PubliGroupe SA      
Cash and cash equivalents   16     16
Other financial assets   42   (7)   35
Non-current assets held for sale   137   29   166
Investments in associates   48   11   59
Property, plant and equipment   4     4
Other intangible assets   63     63
Receivables from pension plans (defined benefit obligations)   15   (24)   (9)
Other current and non-current assets   48     48
Deferred tax liabilities   (11)   (10)   (21)
Financial liabilities   (20)     (20)
Other current and non-current liabilities   (114)   5   (109)
Identifiable assets and liabilities   228   4   232
Goodwill   192   (4)   188
Acquisition costs   420     420
Cash and cash equivalents acquired   (16)     (16)
Investments in associates   (108)     (108)
Deferred payment of purchase price   (8)     (8)
Cash outflow   288     288

The gross value of the trade receivables acquired amounts to CHF 47 million. At the time of the takeover, it was anticipated that CHF 7 million was irrecoverable. The main reasons for the recognition of goodwill are the anticipated synergies and additional market share as well as the qualified workforce. Transaction costs of CHF 1 million were recorded as other operating expenses in connection with the takeover of PubliGroupe.

The following retroactive adjustments to the consolidated balance sheet of Swisscom as of 31 December 2014 resulted from the definitive purchase price allocation:

In CHF million   Reported   Adjustment   Restated
             
Consolidated balance sheet at 31 December 2014      
Other financial assets   273   (7)   266
Non-current assets held for sale   80   29   109
Goodwill   4,987   (4)   4,983
Investments in associates   171   11   182
Defined benefit obligations   2,441   (9)   2,432
Provisions   932   (5)   927
Deferred tax liabilities   357   14   371
Equity   5,457   29   5,486
Share of equity attributable to equity holders of Swisscom Ltd   5,454   29   5,483
Share of equity attributable to non-controlling interests   3     3

The following retroactive adjustments to the consolidated statement of comprehensive income for the year ended 31December 2014 resulted from the definitive purchase price allocation:

In CHF million   Reported   Adjustment   Restated
             
Consolidated statement of comprehensive income 2014      
Net income   1,706     1,706
Other comprehensive income   (938)   29 1   (909)
Comprehensive income   768   29   797
Share of comprehensive income attributable to equity holders of Swisscom Ltd   757   29   786
Share of comprehensive income attributable to non-controlling interests   11     11
1 Actuarial gains from defined benefit pension plans of CHF 32 million less income taxes of CHF 3 million.

Disposal of subsidiaries in 2015

In 2015, Swisscom disposed of Alphapay Ltd and its entire shareholdings in the Swisscom Hospitality Services Group. Alphapay Ltd is active as a debt-collection service provider and is specialised in the receivables management of third parties. Swisscom Hospitality Services offers broadband services to guests and clients in the fields of hotel and conference services in Europe and North America. In addition, iWare SA and Spree7 GmbH, both active in the media sector, were sold in 2015, The sale of these subsidiaries gave rise to a profit of CHF 19 million which was recognised as other financial income. The aggregate carrying amounts of the net assets disposed of as well as the aggregate cash inflows from the sales of subsidiaries in 2015 may be analysed as follows:

In CHF million   2015
Cash and cash equivalents   11
Trade and other receivables   21
Property, plant and equipment   2
Goodwill   13
Deferred tax assets   3
Other current and non-current assets   11
Trade and other payables   (14)
Other current and non-current liabilities   (21)
Total net assets sold   26
     
Purchase consideration   45
Cash and cash equivalents sold   (11)
Deferred payment of purchase price   (1)
Total cash inflow from sale of subsidiaries   33