Billionaire Li Ka-shing’s Hutchison Whampoa Ltd. agreed to buy Telefonica SA’s Irish unit for as much as 850 million euros ($1.1 billion), a year after failing to take over Ireland’s former phone monopoly Eircom Group.
Hutchison’s Three Ireland, the country’s third-largest wireless carrier, will pay 780 million euros in cash and an additional 70 million euros upon meeting certain performance targets, the companies said today. The combination with Telefonica’s O2, Ireland’s No. 2 mobile operator, will increase Hutchison’s customers to about 2 million and its wireless market share to 37.5 percent, the Hong Kong-based company said.
Three Ireland failed in its 2 billion-euro bid last year for Eircom when the country’s largest phone company was under court protection from its creditors. Hutchison, the biggest Asian investor in European wireless assets, this year completed the takeover of Orange in Austria, and is evaluating a merger of its Italian unit with Telecom Italia SpA.
The deal will give Three Ireland “the financial strength to be more aggressively competitive in the Irish market place” Chief Executive Officer Robert Finnegan said in an interview.
European telecommunications companies are seeking to consolidate as growth in mobile-data usage slows and heavy regulation slices profit. Three Ireland will consider whether the company’s network-sharing agreement with Vodafone Group Plc or 02’s network partnership with Eircom is best for the combined Three-02 Ireland business, Finnegan said.
For Madrid-based Telefonica, Europe’s most indebted carrier, the transaction will bring it closer to its goal of cutting net debt to less than 47 billion euros this year.
Telefonica shares fell 0.4 percent to 9.77 euros at 9:56 a.m. in Madrid. Hutchison slipped 1.4 percent to HK$76.95 on the Hong Kong exchange.
Vodafone remained Ireland’s biggest carrier with a 45.3 percent share of the country’s mobile revenue in the first quarter, according to Dublin-based regulator ComReg. The combined O2 and Three entity had 43.6 percent, the figures showed. The merged carriers had combined 2012 revenue of 803 million euros, Three Ireland said.
“This is a very good transaction for Telefonica,” said Andres Bolumburu, a Madrid-based analyst at Banco de Sabadell SA. “This represents a very significant step to meet its debt reduction target.”
After an $85 billion acquisition spree over a decade increased debt and triggered debt-rating cuts, Telefonica Chief Executive Officer Cesar Alierta last year began selling assets. The company is studying ways to raise money from its Colombian unit after it shelved plans to carry out an IPO for the company’s Latin American division.
Hutchison’s earnings before interest and taxes at its European mobile phone unit, which also operates in the U.K., Sweden and Denmark, doubled to HK$3.1 billion ($400 million) last year on data and smartphone sales. The division posted its first annual profit in 2010, seven years after starting services.
Hutchison was advised by BNP Paribas SA and JPMorgan Chase & Co., while Bank of America Corp. and Barclays plc advised Telefonica.