Vodafone Australia and Hutchison '3' mobile merger
http://www.theaustralian.news.com.au/story/0,25197,25031385-643,00.html
MOUNTING losses, insufficient cash flows and fast moving network technology have triggered an upheaval in Australia's $13 billion a year mobile-phone sector, with number three and four players Vodafone Australia and Hutchison "3" forced to merge.
The deal forms a new company, VHA, whose main brand will be Vodafone, with $4 billion in annual sales and 6 million customers.
But it signals the death of the "3" brand that Hutchison has spent more than $3 billion trying to establish in Australia and casts fresh doubts over Hutchison's global commitment to mobiles.
Last Friday, before the deal was announced, Hutchison's share price suddenly ran up from under 9c to 11.5c, in trading volumes almost 10 times its daily average.
"Certainly the ingredients are there and we queried them on Friday so we will go back and see if there is any evidence of insiders acting on privileged information," Australian Securities Exchange spokesman Matthew Gibbs said.
But Hutchison chief executive Nigel Dews, who will head the new company, said there had been no queries from the Australian Securities and Investments Commission. "And we are not expecting any," he said.
The banks advising the deal were UBS and Goldman Sachs JBWere.
Hundreds of jobs from a combined 4700 strong workforce are expected to be cut in coming months as the group rips out a planned $2 billion in savings on operations and networks.
"It will also mean enhanced scale and profitability," VHA chairman-elect Nick Read said.
"In a highly penetrated market, scale makes difference."
Russell Hewitt, CEO of Vodafone Australia, will be a non-executive director of VHA and will also stay on as a consultant for an unspecified period.
Last week, Vodafone Australia's parent, Vodafone Plc, delivered underwhelming financial results as its core western European market began to see sales declines.
Hutchison's parent, Hong Kong-based conglomerate Hutchison Whampoa, is also struggling with its $US30 billion ($45 billion) bet on a patchy global network of third-generation mobile companies.
Hutchison will make a deferred payment to Vodafone of $500 million which will be structured as a shareholder loan from Vodafone to VHA and take precedence over any shareholder returns and the repayment of interest and principal of any other VHA indebtedness.
"Moving from a four-player market to a three-player market is clearly, in our view, a broad positive for the mobiles industry specifically, and the telecoms industry more generally," Goldman Sachs analysts Christian Guerra said.
Vittorio Colao, who stepped up to the top job at Vodafone last year, is pushing for more in-country consolidation as part of his strategy to improve Vodafone's profitability. In Australia, both companies have struggled to make enough profits -- with Hutchison still in loss-making start-up mode and racking up $3.2 billion in red ink so far -- to justify continued expansion of their bandwidth hungry third-generation networks.
Hutchison Telecommunications will remain listed on the Australian stock market although the company only has a free float of about 3 per cent, the majority being owned by Hutchison Whampoa.
The new group will have between 25 and 27 per cent of the mobiles market depending on whether it is by subscribers or revenue.
Mr Dews said VHA had no assurances from the competition watchdog and the companies have lodged a joint submission to the ACCC.
"We believe it creates a sustainable entity to bring low cost telecoms to Australian consumers," Mr Dews said.