Vodafone eyes Wind Hellas merger

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Vodafone Group Plc. has voiced its plans on combining its Greek unit with Wind Hellas Telecommunications SA in an attempt to challenge rival market leader Cosmote Mobile Telecommunications SA, controlled byDeutsche Telekom AG (DTE) and owned by OTE, Greece’s main fixed-line operator.

Vodafone, the worlds largest mobile-phone operator said, Discussions are at an early stage and there is no certainty as to whether an agreement will be reached. The companies do not plan to have a cooperation agreement, but rather a full merger of units.

COMPETITION

The move could help cut costs for Vodafone, an important step for the telecommunication company as revenue figures released in March showed a 19% slump in Greece. The merger would bring the countrys second and third largest mobile-phone operator together, and enlarge their subscriber base to allow them thrive in a competitive environment.

While the market would become a duopoly, no one operator would possess an overwhelmingly large share, Robin Bienenstock, an analyst at Sanford C Bernstein, said in London.

COST REDUCTION

It will not be the first move made by the British telecoms giant to cut costs. In 2009, Colao merged with Hutchinson, Vodafones Australian unit in order to reduce expenses in a country with slim growth prospects.

November saw Vodafone write down $1.31 billion of its Greek business following higher discount rates. The market responded negatively to the news as shares dropped 0.5 % in London.

Both Vodafone Greece and Wind Hellas have around 4 million customers apiece. The former, however has around 30 per cent of the Greek market in terms of revenue, compared to Wind’s 20 per cent. The merger would bring them to roughly the same size as Cosmote Mobile, Greece market leader.

The joining hands would help both the companies pool resources in the fixed-line network market. The Tellas broadband network is also owned by Wind Hellas, while Vodafone has a minority stake in Hellas Online.

SHARES AND BONDS

A 110 billion ($159 billion) bailout was obtained by Greece from its European Union partners in May 2010 as concerns the country would default on its debts spurred borrowing costs to a record. The wage and pension cuts and higher taxes have dampedconsumer spending and renewed economic woes.

Analysts believe the atmosphere may be quite risky for Vodafone to merge and grow. Even before the crisis it was questionable whether investing in Greece would be wise and with the current situation there Im really not sure that getting deeper into the market makes sense, said Heinz Steffen, an analyst at Fairesearch GmbH in Kronberg,Germany.

Wind Hellas is controlled by a group of bondholders , including Mount Kellett Capital Partners (Ireland) Ltd., Taconic Capital Advisers UK LLP, Providence Equity Capital Markets LLC, Anchorage Capital Group LLC, Angelo Gordon & Co. and Eton Park International LLP. Last year it led a restructuring by injecting 420 million euros and writing off debt in exchange for control of the company.

The operator had 3.88 million wireless customers by September 2010.

MERGER

Vodafone would take a majority share and would be responsible for the day to day running of the new entity if the new deal falls through. Whether they would retain both brand names, or whether one would be subsumed by the other is not known.

However, a source said: “It would not necessarily be a merger of equal parts. Vodafone would be left to run things. There is still some detail we need to square but there is a willingness on both sides.” Conversations with regulators are already being undertaken and the telecom companies are hopeful of winning approval for the duopoly because of the difficult economic conditions in Greece.

“The deal would bring a two-player market into being but the question is, would all three players last anyway (without regulatory approval) given the way the country is going?” the source said.

Analysts have reacted positively. The deal would bring about a duopoly that would help stabilise Vodafone’s income in Greece.

Sources: Bloomberg, Telegraph

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