Nov. 28 (Bloomberg) -- Shares of Swisscom AG, Switzerland's largest phone company, are unlikely to outperform European peers in the years before the government sells its 66 percent stake, said analysts and investors including Philippe Kiewiet de Jonge.

The stock had their biggest drop in more than 18 months today after the government said on Nov. 25 it will block Swisscom purchases abroad as long as it holds a majority. Two weeks ago, Swisscom said it's in talks to buy Ireland's Eircom Group Plc.

Swisscom is ``totally in a deadlock situation now,'' said Kiewiet de Jonge, who helps manage a $480 million fund of technology and phone stocks at ABN Amro Asset Management in Amsterdam, including Swisscom shares. ``The company cannot choose its strategy and at the same time it cannot be taken over.''

The government's comments, which came a day after the finance ministry said it plans to cut its Swisscom stake to 50 percent plus one vote and prepare to sell the rest, indicate a rift between Swisscom's management and politicians. Analysts and investors said Chief Executive Officer Jens Alder may be forced out or decide to resign, which would hurt the stock further.

The government ``has effectively issued a vote of no confidence in management which could lead to increased corporate governance interference, a change in management or potentially management conflicting with its major shareholder,'' Deutsche Bank analysts Guy Peddy, Matthew Bloxham and Gareth Jenkins wrote in a report published today.

Swisscom shares fell 10.5 Swiss francs, or 2.5 percent, to 406.5 francs in Zurich, the biggest drop since May 2004. The stock has lost 9.3 percent this year, compared with a 2.8 percent drop in the Dow Jones Europe Stoxx Telecommunications Index.

Rating Cut

Deutsche Bank cut its rating on the stock to ``sell'' from ``hold'' and lowered the 12-month price target by 11 percent to 355 Swiss francs. The stock was first sold to the public for 340 francs in October 1998.

The Swiss government is required by law to hold at least 50 percent plus one vote in Swisscom. After the planned sale of a first stake, the government will prepare to change legislation so it can dispose of the rest. The changes will take at least two years to make, the finance ministry said.

Swisscom said on Nov. 25 the government's decision ``does not relieve the board of directors nor the executive board from their legal obligation to responsibly perform their duties in the best interests of the company and all shareholders.''

No Deals

Alder, 48, hasn't made a major acquisition in his almost six years as CEO. He's under pressure to expand abroad as fixed-line sales drop at home and nine out of 10 Swiss have a mobile phone. Political opposition and higher bids by rivals scuttled Swisscom's attempts to buy Telekom Austria AG and Cesky Telecom AS stakes in the past 15 months.

Dublin-based Eircom, Ireland's largest phone company, had a market value of 2.07 billion euros ($2.4 billion) after the stock fell 16 percent on Nov. 25. The shares fell 3 cents, or 1.6 percent, to 1.91 euros in Dublin.

Alder ``has embarked on looking at acquisitions in the belief he had backing by the board and shareholders, and now he has to say `sorry guys it's not going to happen,''' Kiewiet de Jonge said. ``I could imagine that he's so fed up with the situation that he just goes.''

While the Swiss government has only one seat on Swisscom's nine-member board, it can call a special meeting to vote down any company decision. Finance Ministry spokesman Dieter Leutwyler said on Nov. 25 that the government ``isn't ready to take the risks'' and ``will block foreign engagements'' as long as it holds a majority stake.

Swisscom spokeswoman Pia Colombo today declined to comment in a phone interview.

In a poll published by Swiss newspaper Blick today, 72 percent of Swiss citizens said Swisscom should expand abroad.

Of those polled, 48 percent also thought Swisscom should stay under Swiss government control, the Zurich-based daily said. The poll had a margin of error of 3.2 percent and was based on the responses of 602 Swiss residents from Nov. 24 to Nov. 25, pollster Isopublic said on its Web site.

To contact the reporter on this story: Kenneth Wong in Berlin at kwong11@bloomberg.net.

Last Updated: November 28, 2005 12:23 EST