Vodafone, Hutchison Telecommunications to merge in Australia
TOUGH economic times have triggered an upheaval in Australia’s $13 billion a year mobile sector with its number three and four players Vodafone Australia and Hutchison “3″ forced into merger
The unexpected but long-predicted move will see hundreds of jobs cut as the two companies streamline their combined $4 billion a year businesses and take aim at SingTel Optus’s number two market position, The Australian reports.
The new group, to be named VHA, will have more than 6 million customers and sell products and services under the Vodafone brand.
The deal also appears to signal the death knell of the 3 brand in Australia with Vodafone being earmarked as the new venture’s main brand.
Hutchison will make a deferred payment to Vodafone of $500 million which will be structured as a shareholder loan from Vodafone to VHA and take precedence over any shareholder returns and over the repayment of interest and principal of any other VHA indebtedness.
“The loan is on an arms-length basis and is expected to be re-paid or re-financed within 18 months from completion,” the companies said.
Hutchison chief executive Nigel Dews will run the new group with Dave Boorman as chief financial officer, the same role he currently holds at Vodafone Australia. Russell Hewitt, Vodafone Australia chief executive, will be a non-executive director of VHA.
“‘This transaction will benefit customers in Australia as it creates a company with the necessary scale to compete strongly in the mobile market,” Vodafone global chief executive Vittorio Colao said.
“Customers can look forward to a wider portfolio of voice and data services, delivered under the Vodafone brand over a high quality network, which through ongoing investment will bring 3G coverage to around 95 per cent of the population.
“This is an important step in the transformation of the Australian mobile industry.” Both companies have struggled to make enough profits - with Hutchison still in loss making start-up mode - to justify continued expansion of their bandwidth hungry third-generation networks.
A statement said they plan to make $2 billion of operational and capital spending savings through the deal. The deal also means good news for shareholders of Telstra and Optus in the short term as it reduces competition in the sector but in the longer term a more cohesive mobiles-only third force could see pressure on both groups, analysts said.
The mobile industry, which for the past two decades has been driving growth in the telecommunications industry, is facing tougher times with a number of operators in Europe recently reporting a decline in revenue.
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