• French carrier would be new entrant in Italy’s phone market
  • Hutchison, VimpelCom selling assets to win approval for merger

Iliad SA emerged as the favored buyer of wireless assets in Italy that would be used to create a fourth carrier in the country as CK Hutchison Holdings Ltd. and VimpelCom Ltd., seeking approval to merge their own units, sell towers and frequencies they don’t need.

Hutchison and VimpelCom entered exclusive negotiations with the French carrier, founded by billionaire Xavier Niel, said people familiar with the matter, asking not to be named since the talks are private. Iliad would be a new entrant in Italy, adding to competition in the market as VimpelCom’s Wind Telecomunicazioni SpA and Hutchison’s 3 Italia combine. Swisscom AG’s Fastweb also bid for the assets.

By lining up buyers for the assets, Hutchison and VimpelCom are trying to avoid a repeat of May’s EU veto of Hutchison’s bid for U.K. carrier O2. VimpelCom and Hutchison are planning to submit new concessions this week to avoid the EU sending a statement of objections, people said last week. If the EU doesn’t object the deal, the transaction will likely win its approval with conditions ahead of a Sept. 8 deadline.

An entry into Italy would mark an significant expansion for Iliad, known for wireless packages starting at 2 euros ($2.23) a month. Its debut in France four years ago sparked a price war that has undermined carriers’ profitability, leading to combination attempts among its rivals seeking to reduce competitive pressures.

“Iliad is well-known for offering lower prices in its domestic market, and from this point of view, I think the EU may like this approach for Italy too,” said Fabio Troiani, managing director at consulting firm Business Integration Partners in Milan. This could help alleviate the EU’s objections and pave the way for the merger of Hutchison and VimpelCom’s Italian units, he said.

Representatives for Hutchison, VimpelCom, the European Commission and Fastweb declined to comment. Representatives for Iliad had no immediate comment.

CK Hutchison shares slipped 1.6 percent to HK$83.05 at midday break in Hong Kong. Iliad fell 25 cents to 182.15 euros in Paris Monday, while VimpelCom dropped 1.8 percent to $3.81 in U.S. trading.

The combination of Wind and 3 Italia, valued at more than $20 billion and to be led by Wind Chief Executive Officer Maximo Ibarra, would allow the two carriers to share expenses as competition weighs on call and data prices. The enlarged company would unseat Telecom Italia SpA as the country’s largest wireless provider by customers.

Entrepreneur Niel has also acquired options equivalent to a stake of about 10 percent in Telecom Italia through his personal investment company.

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