VimpelCom CEO Confident Italian Merger Will Pass Muster With EU

  • Faith in Italian deal comes a day after EU blocked U.K. Merger
  • EU will review each proposed tie-up on own merits, CEO says

VimpelCom Ltd. is confident that its 21.8 billion-euro ($24.9 billion) deal with CK Hutchison Holdings Ltd. to create Italy’s largest wireless provider by customers will secure European Union approval and be completed by the end of the year, Chief Executive Officer Jean-Yves Charlier said.

The European Commission opened an in-depth probe into the pact in March on concern it could increase prices and reduce choice for customers in Italy. European regulators are preparing to send the companies a statement of objections cataloging antitrust concerns, people familiar with the matter said last month.

"We remain absolutely confident in the completion of Italian transaction by year-end," Charlier said by phone. "We are working on the Plan A and we are robust in it," he said in response to the question of what he would do if the EU blocks the transaction.

Charlier’s comments come a day after the EU blocked Hutchison’s bid to create Britain’s biggest mobile carrier. Hutchison’s billionaire owner Li Ka-shing’s plan to buy Telefonica SA’s O2 unit in the U.K. became the first-ever mobile tie-up to be vetoed by the European Commission, after pledges to increase investment and freeze prices failed to offset antitrust concerns. Still, the situation in Italy is different and should pass muster with the EU, Charlier said.

"The EU reviews each proposed merger on its merits," Charlier said. "The question in Italy isn’t a reduction in the number of market players from four to three, it’s expanding the market from two main players -- Telecom Italia and Vodafone - to three. Our merger is set to create a third full-scale player in Italy.”

While being sent a statement of objections increases the risk that deals can be blocked, most big mobile phone industry tie-ups in recent years have faced such a filing. Companies can overcome potential antitrust issues by selling units or making agreements that aid smaller rivals. The Italian transaction, like the blocked deal in the U.K., would reduce the number of carrier in the country from four to three.

Charlier said that unlike in the U.K., in Italy there is excess spectrum available and no sharing of networks between the operators to the extent that it would create regulatory problems in the market.

Hutchison’s Italian deal would pass Vodafone Group Plc’s local unit and unseat Telecom Italia SpA as the biggest mobile phone carrier by customers. The venture would pool the assets of Hutchison’s 3 Italia and VimpelCom’s Wind Telecomunicazioni, creating a carrier with more than 31 million customers and 6.4 billion euros in 2014 sales.

Vimpelcom, partly owned by billionaire Mikhail Fridman, reported first-quarter earnings that missed analysts’ estimates as costs grew faster than revenue in key markets including Russia.

Earnings before interest, taxes, depreciation and amortization fell 19 percent to $758 million, including one-time costs of $40 million, Amsterdam-based VimpelCom said Thursday in a statement. Eight analysts surveyed by Interfax had predicted $815 million on average. The underlying Ebitda margin narrowed to 39.5 percent of sales from 40.9 percent a year earlier.

Russia, VimpelCom’s largest market, and Kazakhstan led the decline in profitability as costs surged due to intensified competition and weakening in local currencies. Ebitda measured in local currencies fell 8 percent in Russia and 26 percent in Kazakhstan.

VimpelCom’s shares have lost 15 percent since the end of March, pressured by concern the EU may block its Italian deal. Also, Telenor ASA, the Nordic region’s largest phone company, has hired JPMorgan Chase & Co. to explore the sale of its 33 percent stake in VimpelCom, according to people with knowledge of the matter.

“We will be working with Telenor to help sell their stake at an appropriate point of time,” Charlier said in the interview. “Increasing free-float is one of our objectives.”

VimpelCom’s first-quarter sales fell 12 percent to $2.02 billion and rose 4 percent in local currencies, adjusted for disposals and acquisitions. The company confirmed its 2016 forecast for flat or low single-digit revenue growth in local currencies.

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