Fri, May 13, 2016 page15

• Hong Kong’s ‘Superman’ Li forced to mull other options as O2 deal blocked

  • Bloomberg
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  Hong Kong’s “Superman” is facing more kryptonite as he tries to expand his European mobile-phone carrier holdings.

  EU regulators on Wednesday said they vetoed billionaire Li Ka-shing’s (李嘉誠) proposal to buy UK carrier O2 for as much as ￡10.25 billion (US$15 billion) because of concerns it would hinder competition and create higher prices.

  Li’s CK Hutchison Holdings Ltd (長和集團) wanted to merge its own 3 Italia SPA unit with Telefonica SA’s business in the nation.

  It was the second setback in the past six months for the 87-year-old Li.

  Now that the bid for O2 has been rejected, investor attention is likely to shift to another of Li’s proposed deals — a merger of its telecom business in Italy with that of VimpelCom Ltd’s Wind Telecomunicazioni that would create the nation’s largest carrier.

  “With Asia saturated, investors were looking forward to the European telecom deals,” said Ronald Wan (溫天納), chief executive at Partners Capital International (博大資本國際) in Hong Kong.

  The company said it is “deeply disappointed” with the decision and will consider its options, which include a legal challenge.

  Li’s Hutchison wants to combine its 3 Italia’s assets with those of Wind Telecomunicazioni in a deal valued at 21.8 billion euros (US$25 billion).

  The proposal would reduce the number of competitors in the nation and pose some of the same issues for the European Commission as the O2 plan.

  That does not bode well for the Italian deal, said Erhan Gurses, a London-based analyst for Bloomberg Intelligence.

  “The combined unit’s spectrum position, as well as the potential impact on mobile pricing, may call for structural remedies,” Gurses said.

  The companies could agree to divest part of the merged network and sell some spectrum to appease antitrust authorities, Gurses said.

  Still, the Italian government has said it would not oppose the merger, unlike in the UK.

  Hutchison could consider exiting the mobile-phone business in the UK and Italy because boosting market share there without significant capital investment would be difficult, Geo Securities Ltd (智易東方證券) chief executive officer Francis Lun (藺常念) said.

  “Hutchison overpaid to enter the mobile-phone business, and now the only way they can make money is by achieving economies of scale,” Lun said. “It would be devastating to Li Ka-shing as they will either have to get out or try for organic growth.”

  With rising competition in the UK, Hutchison might find it more difficult to compete with bundled offerings and mobile virtual operators, such as Virgin and Tesco Mobile, Gurses said.

  “It may be harder and harder for Hutchison to turn a profit,” Gurses said. “In such a situation, a potential exit cannot be ruled out.”

  Li could also just leave the businesses as they are, Kingston Securities Ltd (金利豐證券) executive director of research Dickie Wong (黃德几) said.

  It is not like the European phone business is losing money. In the UK, subscriber numbers are rising and profits — measured in terms of earnings before interest, taxes, depreciation and amortization — rose 25 percent to ￡686 million last year.

  In Italy, Ebitda climbed 11 percent to 276 million euros.

  “Telecom is one of their key focus areas, and they did the best they could,” Wong said. “I do not think they will sell their telecom business if the deals do not go through. They are likely to take the wait-and-watch approach.”
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