Hutchison Whampoa and VimpelCom confirmed this week that they are in exploratory talks to merge their respective Italian mobile units in a joint venture, marking the latest effort by the Hong Kong-based company to expand its European operations.
A successful outcome of the talks would unite Three Italy with VimpelCom's subsidiary Wind, bringing together the market's third and fourth-largest players. The transaction would therefore reduce the number of mobile network operators from four to three, following similar moves in Germany, Ireland and Austria.
It's not yet clear who would run the combined Italian entity, although Bloomberg reported that Wind CEO Maximo Ibarra has been earmarked for the job.
Both parent companies have stressed there can be no assurances that an agreement will be signed, and said any transaction would be subject to achieving satisfactory debt levels and obtaining corporate and regulatory approvals.
Reuters noted that Wind's debt remains an issue, and has been an obstacle to a full takeover by Hutchison Whampoa in the past. At the end of last year Wind reported total debt of €9.65 billion ($11 billion). Recent efforts to improve the situation include the sale of over 7,000 mobile masts to Abertis for €693 million.
"Hutchison has been disciplined in only doing deals that are accretive to earnings and cash flow, and we would expect that to be the case if a deal gets done with Wind," commented Hong Kong-based Moody's Investors Service senior analyst Joe Morrison, Reuters reported.
Hutchison has long been interested in shoring up its Three Italy unit and the talks with VimpelCom have been much anticipated.
Indeed, Hutchison has been one of the drivers of a consolidation trend sweeping Europe as mobile operators scale up in the face of fierce competition. The Hong Kong-based company is also in the process of buying O2 UK from Telefónica, and only recently completed the acquisition of O2 Ireland from the Spanish group. It also previously acquired Orange Austria.
Meanwhile Telefónica Deutschland has acquired E-Plus in Germany, TeliaSonera is buying Tele2 in Norway and Telenor and TeliaSonera plan to merge their respective Danish mobile network operations.
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