The wave of telco M&A continues in Europe. No sooner had Vodafone announced success in its fight for Kabel Deutschland, than rival Telefonica confirmed it would sell its O2 Ireland unit to the 3 Group in a €850m deal.
This agreement reflects the contrasting fortunes currently affected by European and Asian conglomerates. While Spanish giant Telefonica is urgently looking to offload assets in order to reduce its debt mountain amid the Eurozone crisis, Hong Kong-based Hutchison seems keen to expand its 3 Europe operations. Although it has repeatedly been rumored to be considering an exit, recently it has been taking advantage of the weakness of European incumbents to target mobile units to consolidate its position and reduce the disadvantages of being the newcomer, and sometimes the fourth player, in many markets.
Last year it acquired Orange Austria and merged that with its existing Austrian unit, and now it will combine 3 Ireland with O2. It will pay €780m in cash on completion and then a further €70m depending on meeting certain targets. The deal is subject to regulatory approval.
The purchase will give it a total of 2m active users, for a market share of about 37.5% in Ireland, a little behind Vodafone but ahead of Meteor. Its next goal will be to overtake Vodafone, leveraging its greater scale. Moving up the cellco rankings will be important to 3 as its European bases ‘ the UK, Ireland, Italy, Austria and Scandinavia ‘ saturate. Hutchison said in its statement that the acquisition would give it ‘scale and financial strength necessary to compete even more aggressively in the market to the benefit of consumers’, and would leave it ‘optimally positioned to become the number one player in the Irish market’.
For the seller, this is ‘part of Telefonica’s ongoing policy of proactive management of its asset portfolio with the aim of increasing the company’s financial flexibility’. It is understood also to have received interest from cableco Liberty Global ‘ also disappointed in the race for Kabel Deutschland ‘ and incumbent telco Eircom (owner of Meteor).
In Italy, Hutchison Whampoa is also aiming to become the largest shareholder in Telecom Italia, which would involve the merger of the incumbent’s TIM mobile arm with 3 Italia. The latter, Italy’s fourth player, is a big cash drain for Hutchison, and as in other countries, it needs to change its position as plucky fourth cellco and acquire additional market share and scale ‘ especially in areas where it has not secured optimum amounts of LTE spectrum capacity.