Hutchison, VimpelCom talks on JV stress equality

Numerical parity is possible, but it would be a departure for Hutchison Whampoa to forsake a control position in a potential telco JV with Vimpelcom

Hong Kong conglomerate Hutchison Whampoa and Russian telco VimpelCom have confirmed they are discussing a potential joint venture between Hutchison's 3 Italia unit and VimpelCom subsidiary Wind Telecomunicazioni.

The creation of the partnership-- envisioned as a equal joint venture-- would create a telecom player taking up roughly a third of Italy's mobile market.

Talks between Hutchison andf VimpelCom on the possible tie-up have started and stopped on a number of occasions, casting doubt on whether a deal will ultimately be inked.

On Wednesday, the Russian company struck a cautionary tone, advising that there are no assurances an agreement will be signed. Any transaction would be subject to achieving satisfactory debt levels and obtaining required corporate and regulatory approvals, the statement said.

The joint venture would be a departure from Hutchison’s usual style of acquiring and taking control, but comes at a time when 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.

Hutchison has plenty of resources at its disposal. Last week, the conglomerate roped in five institutional investors that agreed to buy a third of the combined Three UK and O2 UK business units for £3.1 billion ($4.72 billion).

The deal will likely hinge on whether Russian billionaire Mikhail Fridman’s Alfa group, Vimpelcom’s biggest shareholder, can reach an agreement with Li Ka-shing, who controls Hutchison and is Hong Kong's richest tycoon.

Although Wind and 3 Italia will hold equal stakes in the potential venture, tech industry observers say Hutchison will likely be in the driver’s seat.

“It remains to be seen who is in charge. My money is on Hutchison quite frankly,” said Paul Haswell, a partner at the law firm Pinsent Masons. “No joint venture is equal, there is always a lead partner. Even when you have a joint venture with a 50-50 share and a 50-50 board, one partner always ends up taking the lead and I would presume it would be Hutch, building a bigger web across Europe,” he added.

For its part, Hutchison has been rapidly gaining market share in Europe and developing into a dominant mobile telecommunications giant that is threatening incumbents such as Vodafone.

A Bloomberg report said that Maximo Ibarra, the chief executive officer of Wind Telecomunicazioni, is expected to become CEO of the merged entity. Citing people familiar with the matter, the report said Vincenzo Novari, who leads 3 Italia, is poised to become a board member and take a supervisory role for Li’s businesses in Italy.

Despite Hutchison's rise in Europe, Pinsent Masons's Haswell does not anticipate regulatory challenges. Regulators in Germany and Austria, for instance, have allowed the number of mobile operators to drop from four to three.

"Given that Hutchison's O2 deal seems to be going through unchecked, [and there are] similar moves in Germany and Austria, I don’t think there will be any regulatory challenges," he said.

A deal with Hutchison offers Vimpelcom a platform for further overseas expansion and a partner with deep pockets. Vimpelcom is struggling to pare down its net debt, which stood at $17.6 billion in the first quarter of 2015. The Russian mobile operator’s revenues and Ebitda slumped by 30% and 33% respectively during the first quarter, affected by the weakening ruble.


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