In a terse statement on its website, Telecom Italia said it has ended talks with Hutchison Whampoa about combining their Italian mobile businesses.
"According to the management report on the conclusion of the discussions with the counterparty, the board of directors noted that at present there are not the elements necessary to start negotiations," Telecom Italia said following a board meeting to discuss a possible merger with the Hong Kong-based operator.
Reports had already been rife that the talks had stalled, and Hutchison was understood to be getting increasingly impatient with Telecom Italia over its tardiness in dealing with the issue. It was also reported that the two operators had disagreed over valuation, Bloomberg reported.
"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, told Bloomberg. The main hurdle remains the valuation, De Vita added.
Contacts between the two operators were first revealed in April, but the Italian operator postponed a decision on a possible link-up between Hutchison's 3 Italy and Telecom Italia Mobile as it focused on what was clearly a more important issue for the operator: the decision to spin off its fixed-line operations and sell off a stake in the resulting company.
It's now not clear what options are left for Hutchison in Italy, where the company operates the market's smallest mobile operator and has made it clear it wants to expand its footprint.
Sources told Reuters that Hutchison had held talks with Wind, the country's third-largest operator controlled by VimpelCom. Although this deal would present fewer regulatory problems, valuation again remains a concern.
Reuters noted that Hutchison has a so-called "fair value" of €1.5 billion ($1.9 billion) on 3 Italia, but said some analysts question that valuation.
"Hutchison's plans must now be on hold in Italy, as Wind is very unlikely to accommodate their inflated sense of their own valuation," Bernstein analyst Robin Bienenstock told Reuters.
It's not all doom and gloom for Hutchison from a European growth perspective, however. The company recently acquired O2 Ireland from Telefonica and will be able to expand its presence in that market.
It also acquired Orange Austria in January for €1.3 billion, and recently announced that Orange and 3 are now operating under the joint name of Hutchison Drei Austria GmbH, or "Drei" for short. The next step will be to complete the legal merger of the two companies. The Orange name is set to disappear from the Austrian market in the third quarter of 2013.
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