Telecom Italia, Hutchison drop phone merger talks


Sat, Jul 06, 2013 - Page 15

Telecom Italia SpA has ended talks with Hutchison Whampoa Ltd over a potential merger of their Italian mobile-phone assets, a lost chance to consolidate in Europe’s overcrowded mobile-phone industry through a combination of Italy’s biggest and No. 4 carriers.

Telecom Italia directors, at a meeting in Milan on Thursday, decided “there are not the elements necessary to start negotiations,” Italy’s largest carrier said in a statement after the gathering.

In a separate release, 3 Italia said it would not be in a position to get approval from its Hong Kong-based parent Hutchison for a deal.

The talks stalled over disagreements about valuation, people familiar with the matter told Bloomberg News on Tuesday. Telecom Italia executives intend to focus on spinning off the company’s fixed-line assets, a plan approved by its board at the end of May, they said.

“Though the deal made sense from the business side, there were from the beginning too many regulatory, financial and political obstacles,” Andrea De Vita, an analyst at Banca Akros-Esn, said in a phone interview.

The main hurdle remains the valuation, said De Vita, who has an “accumulate” rating on Telecom Italia shares.

While 3 Italia has a so-called fair value of 1.5 billion euros (US$1.9 billion), the lack of clarity on how much of the carrier’s accumulated losses can be used to offset taxes means the price could differ by billions of dollars, a person familiar with the matter said in May.

Telecom Italia shares fell as much as 2.7 percent and traded 2.4 percent lower at 0.5180 euro at 10:52am in Milan, giving the carrier a market value of 9.4 billion euros.

The company had 28.8 billion euros in net debt at the end of March. Hutchison climbed 0.6 percent to HK$83.25 in Hong Kong.

A failed linkup 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.

In Ireland, Hutchison said last week it agreed to acquire Telefonica SA’s local unit for as much as US$1.1 billion.