Vodafone Group Plc and CK Hutchison Holdings Ltd. are considering combining their unprofitable mobile-phone business in Australia with local broadband provider TPG Telecom Ltd. as intensifying competition forces rivals to consolidate.
Vodafone Hutchison Australia Pty and TPG Telecom Ltd. are in “exploratory” discussions about a deal, they said in separate statements on Wednesday. TPG, which had a market value on Tuesday of A$5.84 billion ($4.3 billion), described it as a “merger of equals.”
TPG, after starting to build a domestic mobile-phone network of its own, soared in Sydney trading as investors bet a union with Vodafone Hutchison would be a less costly alternative. Telstra Corp., Australia’s former phone monopoly, jumped on optimism the tie-up being discussed would avert a fresh price war with TPG. “In the end, business sense has prevailed,” Paul Budde, an independent telecommunications consultant based north of Sydney, said in an email. “It is a win-win situation for both companies,”’ he said, referring to TPG and Vodafone Hutchison.
As competition intensified and handset costs rose, Vodafone Hutchison’s loss widened to A$92.3 million in the six months ended June from A$81.5 million a year earlier, according to Hutchison Telecommunications (Australia) Ltd. filings. Average revenue per user at the joint venture fell 1.3%.
The venture has a troubled history in Australia. It has struggled to lose its nickname ‘Vodafail’ — after its network gained a reputation for patchy coverage and dropped calls.
The tie-up would unite TPG, best known in Australia for its fixed-line broadband services, with Vodafone Hutchison’s almost 6 million mobile customers in Australia. Should the combined entity be listed in Australia, a transaction would shed more clarity on the valuation of Vodafone Hutchison. That might help either party exit the venture after years of speculation that U.K.-based based mobile giant Vodafone was looking for a buyer for its stake.
TPG soared 22% to A$7.65 in Sydney, expanding its market capitalisation to A$7.1 billion. Vodafone Hutchison isn’t publicly traded. Vodafone shares rose 0.2% to 176.44 pence in London.
Telstra, which is struggling to preserve profit margins in its fight with nimbler competitors, jumped 7.2%. Thinly traded Hutchison Telecommunications Australia Ltd. lept 52%.
It’s not clear how any so-called merger of equals would be structured financially. But one ownership structure being considered would see TPG with 50% of the combined entity and Vodafone and Hutchison with a 25% stake each, according to a person familiar with the talks.
There’s no certainty of a transaction or what the terms might be, TPG said in its statement. Representatives for TPG and, CK Hutchison and Vodafone Hutchison declined to comment beyond the companies’ statements.
TPG said last year it would build a mobile network to challenge Australian operators including Vodafone, and spent A$1.26 billion on airwaves. TPG said at the time it would spend an additional A$600 million over three years rolling out a network to cover 80% of Australia’s population.
Source: Mint