Hutchison, VimpelCom to Merge Italy Assets in $24 Billion Deal

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CK Hutchison Holdings Ltd. and VimpelCom Ltd. agreed to combine their Italian telecommunications units in a deal valued at 21.8 billion euros ($24 billion), creating a carrier that would unseat Telecom Italia SpA as the country’s largest wireless provider by customers.

The 50-50 venture will pool the assets of 3 Italia, which is closely held by billionaire Li Ka-shing’s Hutchison, and VimpelCom’s Wind Telecomunicazioni, the companies said Thursday. Wind Chief Executive Officer Maximo Ibarra will take the same role in the enlarged entity, while 3 Italia Chief Operating Officer Dina Ravera will oversee the integration.

Europe’s fourth-largest economy is the last major telecommunications market in the region that hasn’t seen consolidation as competition weighs on call and data prices. A merger of two competing networks would reduce the number of national wireless carriers to three from four, following similar moves in Germany, Ireland and Austria.

“This is a transformational merger for the Italian market,” VimpelCom CEO Jean-Yves Charlier told investors.

The transaction, which requires approval by European antitrust regulators, would create a carrier with more than 31 million customers and 6.4 billion euros in 2014 sales. The companies are targeting annual savings of 700 million euros as they try to create a stronger and more efficient rival to Telecom Italia and Vodafone Group Plc’s local unit.

Shares of VimpelCom, whose largest shareholders include Russian billionaire Mikhail Fridman and Telenor ASA of Norway, fell 1.2 percent to $5.77 at 12:33 p.m. in New York. The stock surged 16 percent on July 29 after Bloomberg reported that a merger agreement was imminent. Hutchison shares rose 1 percent to HK$114.20 in Hong Kong earlier Thursday.

Ports to Perfume

Hutchison is Asia’s largest investor in European telecommunications, with its 3 brand also present in the U.K., Ireland, Austria, Sweden and Denmark. In March, Hutchison agreed to acquire Telefonica SA’s O2 unit in the U.K. for about $15 billion.

In Italy, Hutchison also manages container ships at the port of Taranto in the south, and operates a chain of about 130 Marionnaud Parfumeries SA stores.

The mobile-phone venture will have six board members, with each of the parent nominating three. The chairman’s role will rotate between the two owners every 18 months.

IPO Plan?

The deal values Wind at 13.9 billion euros and 3 Italia at 7.9 billion euros, the companies said. Wind reported net debt of 10.1 billion euros at the end of June. After completion, expected within 12 months, the parents aren’t required to contribute any funds to the venture. VimpelCom said its net debt-to-earnings ratio would halve to 1.6 times after the deal.

The businesses had about 2 billion euros in combined 2014 earnings before interest, taxes, depreciation and amortization.

An initial public offering for the venture is an option in the future, people familiar with the matter said in May. A listing would give investors an alternative to Telecom Italia, the country’s only major carrier that’s publicly traded. Vodafone’s Italian business is closely held, as are Swisscom AG’s Fastweb division and Metroweb SpA, a local fiber carrier.

VimpelCom hasn’t discussed a potential IPO of the business, CEO Charlier said.

Assets that may come up for sale as a result of the deal include Wind’s fixed-line network, called Infostrada, as well as some wireless towers. In March, Rome-based Wind agreed to sell a controlling stake in the company that owns more than 7,300 towers to Spain’s Abertis Infraestructuras SA.

HSBC Holdings Plc and Morgan Stanley advised VimpelCom, while Allen & Overy LLP provided legal counsel. Goldman Sachs Group Inc. assisted Hutchison, and Freshfields Bruckhaus Deringer LLP was legal adviser.

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