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Hong Kong holding company considering 3 stake sale to new investor to help fund acquisition.
CK Hutchison on Thursday revealed it is considering keeping its 3UK arm separate from O2 if and when it completes the takeover of its Telefonica-owned rival.
The Hong Kong holding company said in a statement alongside its full-year results presentation that it is considering selling a stake in 3UK to a new investor in order to help fund the £10.25 billion acquisition of O2.
"Should such [a] new investment proceed, the group will consider implementing a revised business structure that would maintain the continuity and separation of the 3UK and O2 UK businesses," said CK Hutchison.
"This would be directed to achieving benefits in terms of operational strategy and focus, regulatory approvals and contractual obligations, while preserving financial and operational efficiencies and savings expected from the acquisition," the company said.
Indeed, Hutch no doubt hopes its idea will be well received by the European Commission, which is currently reviewing the 3UK/O2 deal and is concerned that a reduction in the number of operators to three from four would lead to post-merger price rises for consumers.
However, as far as one analyst at Haitong Securities is concerned, Hutchison might be wasting its breath.
"We remain confident that regulators will not allow 3UK to buy O2 UK," said John Karidis, telecoms and broadcast equity analyst at Haitong, in a research note.
He cited comments made by CK Hutchison’s finance director Frank Sixt during the company’s results call that suggested Hutch is keen to divest assets or provide network access on financial terms that are at worst neutral, if not accretive.
"We believe there will be no fire sale of mobile network capability," Karidis said.
In addition, even if 3UK and O2 are kept separate, Sixt intimated that they would be viewed from a competitive point of view as if they were merged.
Add all that together, and Haitong strongly doubts that the concessions offered by Hutch will be enough to seal the deal.
The Commission is due to issue its decision by 19 May.
CK Hutchison reported full-year revenue at 3 Group Europe of HK$62.80 billion (€7.16 billion), down from HK$65.62 billion in 2014, driven by forex headwinds. EBITDA climbed to HK$17.40 billion from HK$15.60 billion.
At Hutchison Telecommunications Hong Kong Holdings, revenue jumped 35% year-on-year to HK$22.04 billion, while EBITDA increased to HK$2.89 billion from HK$2.78 billion.
Meanwhile, Hutchison Asia Telecommunications generated full-year revenue of HK$6.90 billion in 2015, up from HK$5.76 billion in 2014. It also swung to positive EBITDA of HK$1.18 billion from negative HK$278 million last year, when it had to pay HK$1.1 billion worth of charges related to improper practices in Indonesia.
