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Hutchison 3 Austria will buy Orange Austria in a deal valued at €1.3 billion ($1.7 billion), according to a statement by Hutchison Whampoa, the mobile phone unit’s Hong Kong parent, on Friday.
The purchase includes debt, and 3 Austria will sell assets worth €390 million to Telekom Austria’s A1, the country’s leading mobile company. Hutchison expects to complete the acquisition of Orange from France Telecom and equity-fund Mid-Europa Partners — which own 35% and 65% of the equity respectively — by the middle of the year.
The Hong Kong conglomerate, controlled by Li Ka-shing, has five core businesses that range from ports to property, retail to infrastructure, as well as telecommunications. In addition to its Austria business, Hutchison’s 3 Group also owns phone operations in the UK, Italy, Ireland, Scandinavia and Australia, and has invested more than $30 billion according to analysts’ estimates.
Hutchison, which was advised by J.P. Morgan, said the deal would make 3 Austria the third-biggest mobile phone operator, with 2.8 million (pro-forma) customers, estimated combined 2011 revenues of €700 million and a 22% market share. A1’s market share in a population of 8.4 million is about 41%, followed by Deutsche Telekom’s T-Mobile Austria with about 31%, while 3’s presence before the acquisition lagged at 10%.
The purchase reflects the continued pressure to consolidate in Europe’s highly competitive telecom market, to cut costs through synergies and gain more networks. In its statement, Hutchison said it expected to generate net present value operating and capex synergies of at least €500 million from the transaction.
In addition to wireless spectrum and transmitter assets it has agreed to sell to A1, Hutchison will also part with Orange’s Yesss! business, raising €390 million.
The net consideration of about €900 million for the purchase means that Hutchison will pay an enterprise value-to-Ebitda multiple of 6.9 times. Analysts at Credit Suisse suggest that the multiple could be as low as 4 times if those €500 million of synergies are achieved.
European telecom operators are currently trading at multiples of between five and six times, but the price for an acquisition normally includes a control premium. In December 2011, Apax Partners paid a multiple of 6.5 for Orange Switzerland, a joint-venture between T-Mobile UK and Orange UK to form Everything Everywhere in September 2009 was transacted at 8.2 times, and back in October 2007, T-Mobile Netherlands paid a multiple of 11.5 to buy Orange Netherlands.
According to Moody’s, Orange Austria has net debt of about €1.1 billion and generates Ebitda (excluding Yesss!) of about €130 million.
The credit rating agency warned on Friday that “the acquisition comes at a time of increasing macroeconomic pressures, particularly in Europe, which accounts for over 40% of Hutchison Whampoa’s revenue base, and a potential addition of up to €0.9 billion of net debt (including debt currently outstanding at Orange) to [Hutchison’s] balance sheet will create further negative pressure for [its] metrics which are already weak for the [A3] rating”.
The company has not said how it intends to finance the purchase, but already this year it has raised $2.5 billion in the international bond market.
Hutchison Whampoa companies have been aggressively acquiring European assets recently, including the UK’s Northumbrian Water Group and the British electricity distribution network of France EDF in 2010.
This year, other Asia-based companies have taken advantage of tough markets and low valuations in Europe to launch takeover bids.
Meanwhile, France Telecom has said that it will continue to leave low-growth mature markets and concentrate on expanding markets in Africa and the Middle East. Morgan Stanley advised both France Telecom and Mid-Europa Partners on the sale.
Hutchison shares rose nearly 4% on Friday, surging about 17% so far this year, while France Telecom’s shares traded flat and have fallen more than 5% year-to-date.
