Feb. 9 ( -- Vodafone Group Plc and Hong Kong billionaire Li Ka-shing’s Hutchison Telecommunications Ltd. will merge their Australian mobile-phone operations to challenge Telstra Corp. in the $8.7 billion market.
The companies will each hold a 50 percent stake in the venture, VHA Pty Ltd., which will market wireless services under the Vodafone brand, according to a statement to the Australian stock exchange today. Vodafone will get a deferred payment of A$500 million ($334 million) from VHA, it said.
Combining the third- and fourth-largest wireless operators in Australia creates a company with A$4 billion in annual sales, 10 percent shy of second-ranked SingTel Optus Pty’s mobile-phone revenue. Vodafone Chief Executive Officer Vittorio Colao said the merger will give the company the necessary scale to compete in the slowing market, where mobile phones outnumber people.
“The Australian mobile market isn’t really big enough for four profitable players,” said Sean Fenton, who manages about $324 million at Tribeca Investment Partners in Sydney. “Vodafone and Hutchison have been the most aggressive price competitors in the market.”
Hutchison Telecommunications Australia Ltd. rose 8.7 percent to close at 12.5 Australian cents in Sydney trading, while Telstra gained 0.5 percent to A$3.73. Singapore Telecommunications Ltd., Optus’s parent, fell 2.8 percent to S$2.46 in Singapore.
Australia Losses
Hutchison’s Sydney-based unit lost A$3.12 billion from 2000 to 2007, according to data compiled by Bloomberg. The wireless operator earned A$2.28 million in 1999, the only year it was profitable, based on available data.
Australia’s mobile-phone revenue growth may slow this year as consumers cut spending amid the deepening recession, Mark Blackwell and Mitchell Kim, analysts at Morgan Stanley, said in a Feb. 3 report.
VHA’s partners had 6 million mobile customers in Australia at the end of June 30. That compares with Telstra’s 9.3 million at the end of June 30 and Optus’s 7.2 million, according to the companies’ earnings statements. Telstra’s revenue from mobile phones was A$6.4 billion in the year ended June 30.
Vodafone, the world’s largest mobile-phone operator, accounted for 18 percent of Australia’s A$13 billion mobile-phone market last year, while Hutchison’s share was 9 percent, according to Nathan Burley, a Melbourne-based analyst at market researcher Ovum. Telstra had a market share of 41 percent and Optus 32 percent, according to Burley.
Necessary Scale
VHA “creates a company with the necessary scale to compete strongly in the mobile market,” Colao said in the statement.
The combined mobile company will boost its high-speed wireless coverage to 95 percent of Australia’s population, according to the statement.
Vodafone will get an annual brand licensing fee from VHA equivalent to 1 percent of service revenue and receive deferred payment from VHA to compensate for the value difference between Vodafone and Hutchison, according to the statement. VHA will retain the rights to use Hutchison’s “3” brand in Australia during an unspecified transition period.
Nick Read, chief executive officer of Vodafone’s Asia- Pacific and Middle East operations, will be chairman of VHA. Hutchison Telecommunications CEO Nigel Dews will be VHA CEO.
The transaction is expected to be positive to Vodafone, Hutchison and parent Hutchison Whampoa Ltd.’s earnings, according to the statement, without giving details. The deal is scheduled to be completed by mid-year, subject to the regulatory and shareholder approval, according to the statement.
UBS AG advised Vodafone and Goldman Sachs Group Inc. advised Hutchison.
SOME NEWS I FOUND MIGHT HELP. ..GOSH
HTA Price at posting:
11.5¢ Sentiment: Buy Disclosure: Held
