3 buys Orange Austria, Vodafone's Greek deal collapses

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3 buys Orange Austria, Vodafone's Greek deal collapses

Economic uncertainty blamed for failure to merge with Wind Hellas, but European Commission pressure may have played a role

By CAROLINE GABRIEL

Published: 6 February, 2012

READ MORE: M&A | Europe

The eurozone crisis is making the M&A merry-go-round among cellcos even more frantic. In the most recent developments, Vodafone has called off talks to acquire Greek operator Wind Hellas, while Hutchison's 3 Group has completed its purchase of Orange Austria.

Both deals were part of a rising trend for European majors to consolidate their holdings as markets saturate, either seeking greater scale by acquiring rival in certain territories, or exiting those markets, as France Telecom/Orange is doing in several countries where it does not have a majority holding or top three market share.

This is the thinking behind the sale of its Austrian unit to 3 Group, which will pay €1.3bn ($1.7bn) for the Orange subsidiary and then merge it with its own 3 Austria division. The transaction includes debt, and 3 Austria will sell spectrum and base station assets worth €390m to the country's leading cellco, Telekom Austria's A1, as a condition of the deal. It will also offload Orange's Yesss! business, raising €390m.

Hutchison expects to complete the acquisition - from 65% owner France Telecom and the other owner, equity fund Mid-Europa Partners - by the middle of the year. 3 Austria will then be third in the market, with 2.8m customers, estimated combined 2011 revenues of €700m and a 22% share. A1 has 41% of the country's mobile connections, while T-Mobile Austria has 31%. On its own, 3 had only 10% share.

In its statement, Hutchison said it expected to generate operating and capex synergies of at least €500m. The net consideration of about €900m means that the Hong Kong group will pay an enterprise value-to-Ebitda multiple of 6.9 times though analysts at Credit Suisse suggest that the multiple could be as low as 4 times, if the synergies are achieved. Multiples are falling - while in December, Apax Partners paid a multiple of 6.5 for Orange Switzerland, the UK Everything Everywhere joint venture in September 2009 was valued at 8.2 times, and back in October 2007, T-Mobile Netherlands paid a multiple of 11.5 to buy Orange Netherlands, according to the analysts.

Vodafone had a similar idea of gaining greater share in a tough European territory when it entered talks to merge its Greek unit with local rival Wind Hellas, which is owned by Largo. Over the past 18 months, the company has sold minority shareholdings in Poland, France, China and Japan to focus on its main businesses. The UK giant blamed current market uncertainty in the hard-hit country, plus other unspecified factors, for the failure of the Greek plan.

Those other factors are thought by many to be pressure from the European Commission. A source told Dow Jones Newswires that the main reason the talks collapsed was "regulatory opposition in Brussels", since the merger would result in a market with only two players, each with about 50% share. In a client note quoted by TotalTelecom, analysts at Espirito Santo Investment Bank said it assumed the Greek or EU regulators had privately indicated to Vodafone that the deal would not get approval. "This allows Vodafone to withdraw without suffering the ignominy of public rejection," the note added.

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