Hutchison’s Italy Wireless Deal Said to Win EU Approval Soon

Updated on
  • Concessions will help Iliad enter Italian phone market
  • Approval comes three months after Hutchison U.K. deal veto

CK Hutchison Holdings Ltd. and VimpelCom Ltd. could win European Commission approval to create Italy’s largest wireless provider as early as next week, according to two people familiar with the matter.

EU Competition Commissioner Margrethe Vestager will likely hold a press conference to announce the deal’s approval, said the people, who asked not to be identified because the discussions are private. The two companies agreed to concessions that will allow Iliad SA to enter the Italian phone market to get the EU to sign off on the transaction.

A deal would halt a streak of setbacks for Li Ka-shing, the 88-year-old Hong Kong billionaire whose business empire sprawls across energy to infrastructure and telecommunications. His attempt to buy a stake in electricity network Ausgrid was rejected by Australian government two weeks ago. A plan to merge Li’s U.K. mobile-phone business with Telefonica SA’s O2 unit was blocked by regulators in May, months after Hong Kong minority shareholders rejected the $12.4 billion buyout offer for his Power Assets division.

A merger in Italy, Li’s second-largest wireless market in Europe behind the U.K, would help the business take on rivals Telecom Italia SpA and Vodafone Group Plc’s local unit.

Lowest Margins

"A consolidation should be an effective remedy to help improve efficiency and profitability through cost savings," Nomura analyst Benjamin Lo wrote in an e-mail. In the first half, Italy reported the lowest profit margins within 3 Group Europe, which also has businesses in Sweden, Denmark, Austria and Ireland.

Vestager’s blessing for the merger comes three months after she vetoed Hutchison’s bid to merge its U.K. phone business with a rival over fears it would increase prices. She had also threatened to block a deal involving Telia AB and Telenor ASA in her home country of Denmark.

The European Commission and Hutchison declined to comment. Amsterdam-based VimpelCom didn’t immediately respond to a request to comment.

Hutchison shares climbed as much as 1.6 percent and traded 0.9 percent higher at HK$98.90 as of 10:07 a.m. in Hong Kong. VimpelCom closed 1.9 percent lower in New York after rising as much as 1.9 percent.

Hutchison and VimpelCom last year agreed on a 50-50 joint venture to pool the assets of 3 Italia, an asset of billionaire Li Ka-shing’s Hutchison, and VimpelCom’s Wind Telecomunicazioni. The transaction, valued at 7.9 billion euros ($8.9 billion), targets annual savings of 700 million euros.

The agreement to help Iliad sell mobile phone services in Italy was likely key to winning approval for the merger after Vestager’s opposition scuttled the two previous, higher-profile, telecom deals in the U.K. and Denmark.

Hutchison and VimpelCom entered into exclusive talks with the French carrier, founded by Xavier Niel, in July. They will sell it towers and frequencies they don’t need to help it expand outside France for the first time. 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.