Hutchison Whampoa

Hutchison's telecoms bid in Italy hits snag

PUBLISHED : Wednesday, 03 July, 2013, 12:00am
UPDATED : Wednesday, 03 July, 2013, 5:16am

Telecom Italia's discussions with Hutchison Whampoa over a proposed merger of their Italian mobile-phone assets have stalled amid disagreements over valuation, according to people familiar with the matter.

Telecom Italia directors, three months after agreeing to examine a combination with Hutchison's H3G unit, would probably decide on halting the project at a meeting this week, said two of the people.

Telecom Italia executives intended to focus on spinning off the company's fixed-line assets, a plan approved by its board at the end of May, they said.

While Telecom Italia could revisit a wireless merger in the future, putting the plan on hold would be a lost chance to consolidate in Europe's overcrowded mobile-phone industry through a combination of Italy's biggest and No4 carriers.

In Ireland, Hutchison last week agreed to acquire Telefonica's local unit for US$1.1 billion.

While H3G has a so-called fair value of €1.5 billion (HK$15.1 billion), the lack of clarity on how much of the carrier's accumulated losses could be used to offset taxes meant the price could differ by billions of dollars, a source said in May.

A representative for Milan-based Telecom Italia could not be reached for comment. A spokesman for Hutchison's Italian unit declined to comment.

Franco Bernabe, Telecom Italia's chief executive, told analysts in May that reaching an agreement with Hutchison would be "complex" because of regulatory obstacles.

Telecom Italia and H3G together control 44.6 per cent of Italy's wireless subscribers based on first-quarter data compiled by the Agcom regulator. Wind and Vodafone are the other network carriers.

A failed link-up between Telecom Italia and Hutchison would not be a first. Hutchison held discussions in 2010 over a sale of the business to Telecom Italia, and the talks did not result in a deal because of differences in valuation, people with knowledge of the matter said at the time.

Telecom Italia had initially planned to recommend a decision on Hutchison by early last month pending an "in-depth" review. Board members postponed their ruling at a June 5 meeting. They are scheduled to meet tomorrow in Milan.

Some members of a Bernabe-led panel tasked with the review were sceptical about a transaction from the beginning, while leading Telecom Italia shareholder Telefonica was concerned about potential losses in any deal.

Telefonica is the biggest investor in Telco, which owns almost 22.5 per cent of Telecom Italia. Other Telco shareholders are Assicurazioni Generali, Intesa Sanpaolo and investment bank Mediobanca. Mediobanca said it intended to sell its 2.6 per cent holding within three years.