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5 Business combinations and disposal of subsidiaries

Business combinations in 2015 and 2016

In 2016, Swisscom made payments, net of cash and cash equivalents acquired, totalling CHF 38 million (prior year: CHF 64 million) for the acquisition of subsidiaries. Of this amount, CHF 32 million (prior year: CHF 8 million) relates to deferred consideration arising on business combinations in prior years and CHF 6 million (prior year: CHF 56 million) for subsidiaries acquired during the accounting period.

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 was 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 at the time of consummation of the transaction amounted 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 costs   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 Ltd. 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 online 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)
Issuance of equity instruments   (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.

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 liabilities   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