Hutchison, VimpelCom Win EU Approval for Italy Phone Merger

  • EU says deal cleared with package to aid Iliad market entry
  • Regulatory opposition had stopped previous 4-3 telecoms deals

CK Hutchison Holdings Ltd. and VimpelCom Ltd. won European Union approval for a merger creating Italy’s largest wireless provider after they agreed to help a smaller rival, Iliad SA, become the country’s fourth mobile carrier.

The companies got green light only after delivering “a remedy" to the EU’s concerns about reduced rivalry, Competition Commissioner Margrethe Vestager said at a media conference in Brussels Thursday.

“We could not have allowed this transaction to go ahead as originally notified to us,” Vestager said.

A merger in Italy, billionaire Li Ka-shing’s second-largest wireless market in Europe behind the U.K, will help his company, Hutchison, take on rivals Telecom Italia SpA and Vodafone Group Plc’s local unit. Iliad, which agreed to acquire assets from the merging entities in July, is known for its low-cost offerings and is set to intensify rivalry further.

The deal will halt a streak of setbacks for Li, 88, whose business empire sprawls across energy to infrastructure and telecommunications. His attempt to buy a stake in electricity network Ausgrid was rejected by the Australian government about 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.

For more on Li’s dealmaking, click here.

Hutchison and VimpelCom welcomed the EU decision, saying in a statement the approval paves the way for 7 billion euros ($7.8 billion) of investment in infrastructure and improved coverage. The companies agreed on the 50-50 joint venture last year to pool the assets of 3 Italia, an asset of Hutchison, and VimpelCom’s Wind Telecomunicazioni.

The transaction, valued at 7.9 billion euros, also targets annual savings of 700 million euros. The combined entity will be led by Wind Chief Executive Officer Maximo Ibarra.

Previous Rejections

The EU blocked Hutchison’s last big European deal-making attempt in the U.K. Merging Hutchison’s British unit Three with Telefonica SA’s O2 might have increased prices and limited rivals’ ability to compete, Vestager said at the time. She had also threatened to stop deal involving Telia AB and Telenor ASA in her home country of Denmark last year.

On Thursday, Vestager was scathing on telecommunications operators’ call for so-called “market repair,” or consolidation that might lessen competition and allow them to increase prices. The EU’s job is to protect consumers from deals that might reduce rivalry, cut quality and harm innovation, she said.

Helping Iliad enter the market answers EU worries that the deal would shrink the number of carriers to three. Hutchison and VimpelCom will sell Iliad towers and frequencies they don’t need to help it expand outside France for the first time.

Regulators had been concerned that the deal could otherwise have led to price increases and lower quality, while harming so-called virtual mobile operators by reducing the number of operators willing to let them piggyback on their network.

Iliad "has the know-how and expertise to operate, invest and innovate in the Italian market," EU regulators said in a statement. The company will be able to buy spectrum in different frequency bands and purchase or share several thousand mobile base-station sites. Iliad also gets to use the Hutchison-VimpelCom network until it rolls out its own.

Iliad’s 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. As Italy’s fourth mobile operator, Iliad is aiming to achieve a 15 percent market share, executives said on an earnings call this week.

— With assistance by Stephanie Bodoni

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