The merger between Italian wireless carriers Wind Telecomunicazioni (VIP -0.7%) and Three Italia (OTCPK:HUWHY) is set to go forward after a decision by the EC due Sept. 8.
According to a CTFN source, divestments to French low-cost carrier Iliad (OTCPK:ILIAY) -- whose market entry is a condition for the deal -- will include a balanced set of 2x35 MHz frequencies across 3G and 4G: 2x5MHz at 900MHz, 2x10MHz at 1800MHz, 2x10MHz at 2100MHz and 2x10MHz at 2600MHz for €450M to be paid over the next three years.
The entire deal is said to be €800M, though, and includes Iliad committing to acquiring "several thousand" macro sites in dense areas along with a rural sharing/acquisition agreement, and a five-year roaming agreement at minimum.
Wind and Three will also reportedly transfer 40 engineers to Iliad to help set up operations.
The two have pressed to combine their Wind Telecomunicazioni and Three Italia into Italy's largest wireless carrier via an $8.9B transaction, but have been pursuing that deal against the backdrop of a European Commission taking a hard line on competition. The EC blocked Hutchison's attempt to merge its Three UK with O2.
But a revised plan from the two hopefuls included sales of spectrum, sites and services, and allowing France's Iliad (OTCPK:ILIAY) to enter the Italian market as a new competitor.
Approval would affect the stock of current market leader Telecom Italia (TI +1.1%), which tumbled last month when VimpelCom and Hutchison submitted new merger plans, and of Vodafone (VOD -0.6%).
The European Commission -- lately prone to blocking telecom consolidation on the continent -- is ready to sign off on a €21.8B combination of Three Italia, owned by Hutchison (OTCPK:HUWHY), with Wind Telecomunicazioni, owned by VimpelCom (VIP +1.7%).
Hutchison saw a similar deal blocked by the EC, to merge its Three UK unit with Telefonica's O2.
The move would make the combo the biggest wireless provider in Italy, competing against Vodafone (VOD +1.3%) and Telecom Italia (TI +2.3%), though Hutchison and VimpelCom agreed to concessions and asset sales to help create a new entrant in France's low-cost provider Iliad (OTCPK:ILIAY -4.2%).
The EC is scheduled to officially rule on the case by Sept. 8.
Hutchison (OTCPK:HUWHY) and VimpelCom (VIP +0.3%) -- trying to merge their Italian units Three Italia and Wind Telecomunicazioni -- have submitted a new concession plan to European regulators in the wake of a new entrant to the Italian market.
The two have worked against tough odds for months to merge the units into Italy's biggest wireless provider, but their agreement to sell spectrum, sites and services to enable France's Iliad (OTCPK:ILIAY) to enter the market have likely changed the game.
European regulators have taken a tougher approach to telecom consolidation under Margrethe Vestager. Regulators vetoed Hutchison's bid for O2 in the UK in May, and last year Sweden's TeliaSonera and Norway's Telenor called off a merger of their Danish operations after EC opposition.
Facing the increased likelihood that it will be displaced as Italy's largest wireless carrier, Telecom Italia (NYSE:TI) is now down 8.8% in U.S. trading. It closed down 10.8% in Milan.
Telecom Italia (NYSE:TI) is hitting a two-and-a-half-year low, down 9.4%, following a downgrade from JPMorgan amid hot new competition in Italy's mobile sector.
The analysts lowered their rating on the Italian incumbent to Neutral, from Overweight, as Iliad (OTCPK:ILIAY) has confirmed reports that it's got a deal to buy assets from Hutchison (OTCPK:HUWHY) and VimpelCom (VIP +0.3%) and enter the mobile market as a fourth player.
That deal will enable a long-challenged merger of Hutchison and VimpelCom's Italian units. Two blocks of 35 MHz of spectrum will be transferred for a total of €450M, and Iliad also has a deal to acquire several thousand macro sites in dense areas.
Iliad's top shareholder, Xavier Niel, says he doesn't have a material stake in Telecom Italia; his position amounts to less than €25M, he says, and he'll dispose of it within the next few weeks.
The company needs to reduce debt but is reportedly coming to the conclusion that it's better off with O2 than without, and will look for other ways to deleverage (which could include an IPO for at least part of O2).
A long-in-the-making £10.3B deal to merge O2 with Hutchison's Three UK was blocked by the European Commission earlier this month for competitive reasons. Before that, Chairman Jose Maria Alvarez-Pallete had said if Telefonica was still drawing earnings from O2, it wouldn't need to raise as much as what it aimed for in a sales process.
“I think that the chances of a successful appeal are small – the European Commission has done a thorough job and will have plenty of material to justify its decision," a telecom/M&A lawyer tells CTFN.
Even if it were to be successful, an appeal would take at least a year -- and Telefonica may likely go with another suitor, like Liberty Global (LBTYA -1.1%).
European tie-ups are being closely watched as the EC has taken a tougher stance on deals under the leadership of Margrethe Vestager. Last year, Sweden's TeliaSonera and Norway's Telenor called off a merger of their Danish operations amid the opposition of Vestager's EC.
EU antitrust regulators have blocked Hutchison's (OTCPK:HUWHY) planned £10.3B ($14.9B) acquisition of O2 from Telefonica (NYSE:TEF), saying the deal would have led to higher mobile phone prices in Britain.
"We will study the commission's decision in detail and will be considering our options, including the possibility of a legal challenge," Hutchison said in a statement.
Today's decision also raises the bar for Hutchison's planned combination in Italy with Vimpelcom, which is the subject of a full-scale EU investigation.
The European Commission is set to block the £10.3B (about $14.9B) purchase of O2 (TEF -0.7%) by Hutchison (OTCPK:HUWHY), a deal that would have created the UK's biggest wireless carrier, Reuters reports.
The deal would have merged Telefonica's O2, the No. 2 provider in the country, with Hutchison's Three UK, the fourth-largest. But the result would have been the top carrier and reduced the market to three competitors, facts that came to bear for Margrethe Vestager, head of the EC's Competition Commission.
Tricky concessions offered by the two, including divestments, weren't enough to address fears, sources said.
Last week as prospects for the deal seemed to dim, Telefonica acknowledged it was looking at a few alternate plans to try to cut a debt pile that amounts to more than $56B.
That includes trying to merge O2 with another company with mobile interests, like Liberty Global (NASDAQ:LBTYA) or a private-equity buyer, or even spinning it into a British IPO, Bloomberg reports.
A deal of about £10.3B ($14.6B) to combine O2 with Hutchison's Three UK would go a long way toward cutting €49.9B ($56.5B) in debt. And Telefonica still prefers that as the "cleanest" option to reduce investor uncertainty.
The deal's at risk while Hutchison considers even more concessions, as the EC reportedly prefers the creation of a fourth operator in the UK out of the transaction, rather than simply reinforcing smaller MVNOs. Hutchison may be prepared to go to court instead, saying unloading a (changed) O2 or Three to someone else undermines the rationale for the combination.
UK regulators are taking a hard line on the proposed merger between telecoms Three UK (OTCPK:HUWHY) and O2 (TEF +1%), expressing serious concerns to European watchdogs about what a combo might mean to the UK market.
The UK Competition and Markets Authority's chief executive Alex Chisholm has told Margrethe Vestager, head of the EC's Competition Commission, that the merger is likely to lead to higher prices, lower quality or both.
Today the CMA suggested that either Three's or O2's mobile network business be divested completely or for the companies to allow for carve-outs.
Hutchison's proposal to merge its No. 4 provider with O2, the country's No. 2, would create the UK's largest carrier and reduce the market to three competitors. The UK asked to take over the deal investigation, but in December, the EC (which had opened a full probe) rejected that request.
In early March, Hutchison headed into closed-door meetings with the EC to discuss how to make the deal happen.
The long-in-the-making merger of Italy's No. 3 and No. 4 mobile operators is getting a hard look for antitrust concerns at the European Commission, CTFN says.
Wind Telecomunicazioni -- the Italian unit of Vimpelcom (VIP -3%) -- and Hutchison's (OTCPK:HUWHY) Three Italia submitted remedies to the EC, but beyond that a source says the commission will make sure there's a third party who's interested in acquiring divested frequencies.
Failing that, the combo could be blocked. The EC had opened a full probe into the tie-up last week after rebuffing an effort from Italy's government to take over the review.
The EC is concerned about "higher prices, less choice and reduced innovation for mobile customers in Italy."
The European Commission has opened an in-depth probe into the deal to merge Italian operations between Hutchision (OTCPK:HUWHY) and VimpelCom (NASDAQ:VIP), with a focus on the effect it will have on consumer prices.
The long-discussed combination of Hutchison's Three Italia with VimpelCom's Wind Telecomunicazioni "could lead to higher prices, less choice and reduced innovation for mobile customers in Italy," the EC says.
The two companies will cooperate with the investigation into a deal that would reduce Italy's market to three players and create its biggest mobile carrier by subscriber numbers.
The news follows a stronger line by the EC on Hutchison's plan for its takeover of O2 in the UK as well. The EC will take 90 days to examine the Three-Wind deal, with an Aug. 10 deadline to decide on the deal.