EU to Block U.K. Hutchison-Telefónica Merger -- 2nd Update
04 May 2016 - 12:33AM
Dow Jones News
By Natalia Drozdiak and Valentina Pop
BRUSSELS--The European Commission is set to torpedo CK Hutchison
Holdings Ltd.'s planned multibillion-dollar takeover of Telefónica
SA's British cellphone operator O2, two people familiar with the
matter said, highlighting the hardening approach by EU regulators
toward consolidation in the fragmented telecommunications
industry.
The EU's 28 commissioners are scheduled to approve the decision
by the bloc's antitrust watchdog on Wednesday, the people said,
after the companies failed to assuage the regulator's concerns the
deal would lead to higher prices and less choice for U.K.
consumers.
The item is on the agenda for the weekly meeting of the 28 EU
commissioners where the decision is usually a formality.
The commission and the companies declined to comment.
European Union antitrust chief Margrethe Vestager has taken a
tough stance against telecoms mergers in the region, particularly
in cases where deals reduce the number of mobile-telecom operators
in a given country from four to three, as would be the case in the
U.K. deal. The first such deal to be reviewed under Ms. Vestager's
watch, in Denmark, was abandoned last year following resistance
from Brussels.
The commission's decision in the U.K. deal reinforces the EU's
course for future telecom merger reviews, including its probe into
Hutchison's plans in Italy to merge its 3 Italia business with
Russian telecom firm VimpelCom Ltd.'s Wind Group--another so-called
"four-to-three" merger.
"It seems to be a key turning point because of what happened in
Denmark last year," said Adrian Baschnonga, a telecoms analyst with
Ernst & Young. "A lot of the industry thinks that the European
attitude toward consolidation is hardening."
Mobile operators say mergers, and the price increases that may
come with them, are necessary so that they can build better
networks, especially since consumers are using much more data as
they watch more videos on smartphones.
In the U.K., the purchase of Telefónica's British mobile
operator by Hong Kong tycoon Li Ka-shing's Hutchison would have
combined O2, the country's second-largest mobile operator and Three
U.K, Britain's fourth-largest operator. The acquisition, announced
in 2015, would have more than tripled Three's U.K. subscribers to
34 million and would create the country's biggest mobile
operator.
Hutchison and Telefónica in early March submitted commitments to
the EU to help push the deal through, but the EU's antitrust body
has deemed them insufficient.
The companies offered to sell fractional ownership stakes in its
U.K. mobile network to competitors, allowing them access to the
network as well as additional rights, such as influence in network
investment decisions.
Hutchison also said they would freeze prices for customers for
five years, though EU antitrust regulators can't accept such a
pledge as a formal commitment since the remedies need to be
structural.
Hutchison, which has in recent years been buying and merging
with other mobile carriers in Europe in a bid to cement itself as
one of bloc's top wireless providers, can appeal the commission's
decision in the U.K. case.
Telefónica executives said last week they were leaving open the
possibility that EU regulators would block the sale of its U.K.
unit to Hutchison. They highlighted the unit's strong performance
in the first quarter of this year, which leaves open various
options--such as finding another buyer or keeping the unit--if the
deal does fall through.
"We have many options" if the deal with Hutchison doesn't go
through, said Telefónica Chief Strategy and Finance Officer Ángel
Vilá.
Telefónica chairman José María Álvarez-Pallete said that a legal
analysis of the transaction would allow the deal to clear all
regulatory reviews and that if the sale were killed, it would be
for "political reasons."
With the U.K. set to vote on June 23rd on whether to remain in
the EU, some lawyers say that may have added to the pressure on the
commission to decide against the deal, in favor of the British
regulators.
Both the U.K.'s Competition and Markets Authority and its
communications regulator Ofcom have v oiced their concerns about
the deal, saying it would kill competition and lead to higher
prices for British consumers.
Stu Woo in London and Jeannette Neumann in Madrid contributed to
this article.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and
Valentina Pop at valentina.pop@wsj.com
(END) Dow Jones Newswires
May 03, 2016 10:18 ET (14:18 GMT)
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