CK Hutchison and Vimpelcom strike Italian telco JV

CK Hutchison and Vimpelcom reach a joint venture agreement to merge 3 Italia and Wind, creating a company valued at €21.8 billion.

CK Hutchison Holdings, parent company of mobile operator 3 Italia, and Vimpelcom, parent of Wind, are creating a joint venture that will own and operate their telecoms businesses in Italy, both companies said on Thursday night.

The 50:50 joint venture has a value of €21.8 billion ($23.8 billion), with Wind accounting for €13.9 billion and 3 Italia €7.9 billion, the companies said, making it one of the largest M&A deals in Italy since 2007.

The deal ends constant speculation about a merger between the two companies and gives them scale to expand their operations in Italy, which is the fourth largest telecoms market in Europe. The joint venture will have roughly a third of Italy's mobile market share. 

Prior to the agreement, there were doubts as to whether Russian billionaire Mikhail Fridman’s Alfa group, Vimpelcom’s biggest shareholder, could reach an agreement with Li Ka-shing, who controls CK Hutchison and is Hong Kong's richest tycoon.

A joint venture is a clear departure from Hutchison’s usual style of acquiring and taking control but was perhaps born of necessity: The conglomerate is doubling down on its biggest acquisition – the £10.25 billion ($15.2 billion) purchase of British mobile firm O2, highlighting the need to manage its debt levels.

Through the joint venture, both companies will have resources to develop infrastructure and services to offer customers high-speed mobile and fixed broadband services in Italy. 

“This joint venture will give the combined business the scale and strength to offer Italian consumers and businesses a state of the art network with greater 4G coverage and higher speeds,” said Canning Fok, co-group managing director of CK Hutchison, in a statement.

The combined business will have more than 31 million mobile customers and 2.8 million fixed-line customers, of which 2.2 million are fixed-broadband customers. 

The deal will also result in cost savings in excess of €5 billion and the joint revenue of both companies in financial year 2014 was €6.4 billion.

The new company will be led by Maximo Ibarra, the current CEO of Wind. Vincenzo Novari, the current CEO of 3 Italia, will be appointed senior adviser for Italy to CK Hutchison and will also serve as CK Hutchison's nominee on the joint venture's board.  

Dina Ravera, 3 Italia’s chief operating officer, will lead the merger integration process and will remain in a senior operating role in the combined business. Stefano Invernizzi, current CFO of 3 Italia, will become CFO of the combined business. 

The joint venture's management team will be supported by a board of six members, three of whom will be nominated by each parent company respectively. The chairman of the board will rotate between the two parent companies every 18 months and will have a casting vote on certain business matters.

However, although the companies are clearly striving for an equal joint venture, it is not clear whether an equal partnership is actually possible.

The deal is expected to be completed within 12 months and is subject to regulatory approvals, including from the EU competition regulator. After the transaction is completed, there will be no additional obligations to contribute funds by either parent company, the companies said.

HSBC and Morgan Stanley advised Vimpelcom. Goldman Sachs advised CK Hutchison. 

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