Mergers & Acquisitions

Li Ka-shing’s Hutchison still eyes British mobile network expansion amid Brexit uncertainty

PUBLISHED : Tuesday, 28 June, 2016, 9:48am
UPDATED : Tuesday, 28 June, 2016, 4:58pm

CK Hutchison Holdings, the flagship conglomerate of Li Ka-shing, still has its sights set on expanding telecommunications network operations in Britain despite the fallout over the country’s vote to leave the European Union.

The Hong Kong-listed company’s proposed takeover of mobile network operator O2 was rejected by the European Commission last month, more than a year after it agreed to buy the British firm for £10.25 billion (HK$108.59 billion) from Spanish owner Telefonica.

“We are still considering a number of options,” a Hutchison spokesman told the South China Morning Post on Monday without elaborating.

Hutchison, with its business largely exposed to Britain, saw its shares fall to HK$80.60 in early trading on Tuesday, its lowest level since February last year. It finished the day at HK$82, down 1.80 per cent.

Telefonica is reported to be considering a delay of a possible initial public offering of O2 because of the post-referendum market volatility, which has seen a sharp decline of the British pound.

Hutchison said in May that it would “study the commission’s decision in detail” and consider options that include “the possibility of a legal challenge”.

The commission blocked the O2 acquisition based on strong concerns that Britain’s mobile customers would have had less choice and paid higher prices as a result of the takeover.

That blockbuster deal would have merged the operations of Hutchison subsidiary Three UK with O2, creating Britain’s biggest mobile network operator with almost 33 million customers and a market share of more than 40 per cent.

It would have also been Li’s biggest overseas acquisition, surpassing the £5.77 billion paid by Cheung Kong Infrastructure to take over UK Power Networks in October 2010. Shares of Cheung Kong Infrastructure declined 2.63 per cent to close at HK$64.75,  the lowest level since September last year.

Amid the market uncertainty, analysts do not see any silver lining for Hutchison to revive its takeover of O2 because of the British exit from the EU – known as “Brexit”.

“Based on the stance taken by communications regulator Ofcom and the Competition and Markets Authority when the Three-O2 case was dealt with, it is unlikely that the Brexit will give Hutchison any more chances to revive [that merger] in the short term,” Ovum senior analyst Luca Schiavoni said.

“Both Ofcom and the CMA came to the conclusion that the deal would have damaged the level of competition in Britain’s mobile market, and agreed with the European Commission when it decided to block the merger.”

Schiavoni added that Brexit will likely have minimal impact on Britain’s regulatory environment because the EU’s telecommunications regulation “borrows a great deal from Britain’s experience”.

According to credit rating agency Moody’s, about 21 per cent of Hutchison’s HK$396 billion revenue last year was derived from its British businesses, led by telecommunications and infrastructure.

“[Britain] is the key profit contributor to [Hutchison], but the inherent stability of its businesses there limits any impact on its operations ... following the Brexit,” said Joe Morrison, a Moody’s vice-president.