Bloomberg News

Vodafone Abandons Greek Merger on European Union Opposition

February 07, 2012

(Updates with analyst comment in third paragraph.)

Feb. 6 (Bloomberg) -- Vodafone Group Plc decided to abandon an attempt to merge its Greek unit with rival Wind Hellas after facing European Union regulatory opposition.

Vodafone and shareholders of Wind Hellas, Greece’s second- and third-largest mobile-phone service providers, “agreed to terminate discussions relating to a potential business combination,” the British phone company said in a statement today. The talks ended as European regulators were concerned about creating a market with only two operators, a person with knowledge of the matter said, declining to be identified because the discussions are private.

“Mobile consolidation down to two players has never happened,” said Nektarios Papagiannakopoulos, an analyst at Eurobank EFG Securities in Athens. “Though the market thought that it would have been good for the players in the market, including OTE.”

A successful merger would have allowed Vodafone to reduce costs and better compete in the country with Hellenic Telecommunications Organization SA, or OTE, which is controlled by Deutsche Telekom AG. Vodafone in November booked an impairment loss of 450 million pounds ($710 million) for its business in Greece, citing lower cash flow and an increase in discount rates. In the year-earlier period, Vodafone had already lowered the value of its Greek operations by 800 million pounds.

Seeking Cost Cuts

Under “normal” economic conditions, a combined Vodafone, Wind Hellas entity would have been worth close to 3 billon euros, said analyst Vassilios Vlastarakis at Beta Securities Ltd.

Vodafone Greece has about 4 million customers. Wind Hellas has about 4 million wireless and fixed customers combined, a company spokesman said last August.

Vodafone rose 0.1 percent to 175.30 pence in London trading as of 8:03 a.m. while Deutsche Telekom gained 0.4 percent to 8.86 euros in Frankfurt.

European telecommunications companies are seeking consolidation to cut costs as subscriber growth stagnates and network development costs surge with the popularity of data- hungry devices such as Apple Inc.’s iPhone.

Last week France Telecom SA announced the sale of its Austrian unit to Hutchison Whampoa Ltd, reducing the number of operators in that country from four to three. The deal may have to be amended to win European and Austrian approval, the country’s Federal Competition Authority said on Feb. 3.

Sharing Infrastructure

The number of U.K. operators fell to four from five after France Telecom and Deutsche Telekom in 2009 merged their British units to form Everything Everywhere, an operator bigger than Telefonica SA’s O2 unit and Vodafone in the country.

In Greece, Newbury, England-based Vodafone and Wind will now seek other ways to co-operate and cut costs, for example through sharing cellular network infrastructure, the person said.

The aborted Vodafone deal is the second major effort to combine mobile operators in Europe to be scrapped in as many years. France Telecom in 2010 abandoned plans to merge its Swiss unit with competitor Sunrise, then owned by Denmark’s TDC A/S, after regulators rejected its initial proposal.

Wind Hellas is controlled by a group of bondholders who led a reorganization in 2010 by injecting 420 million euros and writing off debt in exchange for control of the company. The group includes Mount Kellett Capital Partners (Ireland) Ltd., Taconic Capital Advisers UK LLP, Providence Equity Capital Markets LLC, Anchorage Capital Group LLC, Angelo Gordon & Co. and Eton Park International LLP.

Vodafone Chief Executive Officer Vittorio Colao in 2009 merged Vodafone’s Australian unit with Hutchison Telecommunications Ltd.’s operations as it sought to reduce expenses in a country with slim growth prospects. Under Colao, Vodafone has sold minority stakes in China Mobile Ltd. and French wireless operator SFR and also reduced its interests in Japan’s Softbank Corp.

--Editor: Simon Thiel, Kenneth Wong.

To contact the reporters on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net;

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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