Hutchison Sells 10% Of 3 Italia To Goldman Sachs
HONG KONG -(Dow Jones)- Hutchison Whampoa Ltd., which further postponed the spin-off of its Italian third-generation business, said Saturday it is selling 10% of the unit to Goldman Sachs for EUR420 million through a private placement.
That implies an enterprise value of about EUR9 billion for 3 Italia SpA, based on projected net debt of about EUR4.8 billion at year end 2006.
Despite having recently obtained approvals from Italian regulators, Hutchison had overnight decided to defer the spin-off, after sponsors valued the unit at a lower enterprise value of EUR7 billion, Canning Fok, Hutchison's group managing director, told a news conference.
"The objective of listing 3 Italia is to seek benchmark for our 3G business," said Fok.
"When the IPO market is not beneficial to us and the European telecoms sector is not performing well, it'll be bad for Hutchison shareholders if we forcibly go ahead with the spin-off."
Asked when will Hutchison relaunch the IPO, Fok said there's no fixed timetable, but added "we've a lot of flexibility to do this kind of thing."
He said 3 Italia is not experiencing the same adverse business environment as its peers such as Vodafone and Telecom Italia's mobile unit, TIM.
Under the agreement, Goldman Sachs will subscribe to 10% of 3 Italia held by Hutchison, and will have the right to exchange them for 3 Italia shares on an IPO, Hutchison said.
If the listing doesn't proceed within three years, Goldman Sachs can sell them to Hutchison at the initial purchase price plus a premium based on three-month Euribor interest rates plus 0.9%, subject to adjustment.
Hutchison said it will not realize any profit upon completion of the stake sale, but a profit could be recognized upon the exchange of 3 Italia shares. The transaction is expected to be completed by March 31.
Fok said Hutchison has no intention to further place 3 Italia shares to other private investors.
Fok also declined to comment if Hutchison will retain the same sponsors when the firm revives its listing plan in the future.
Analysts and fund managers said the move is one of the better solutions for Hutchison amid weak market sentiment in the European telecom sector.
"It's a reasonable solution. Timing is very bad at this time. Right now, the (European) telecom sector is really beaten up, and valuations look very cheap," said Francis Cheung, a telecom analyst at CLSA Ltd.
He added that Vodafone, a benchmark-setting telecom company, is trading at a price-to-earnings ratio of nearly 10 to 1.
"This is not a good time for doing (an) IPO. The market condition is very bad," Cheung said.
"And 3 Italia should be in much better financial position next time they do an IPO," he added.
3 Italia only started posting monthly positive earnings before interest, tax, deprecation and amortization last August, and the unit is on track to deliver full-year EBIDTA positive figures this year, Fok said.
Things went well when Hutchison first unveiled its listing plan last August, but the atmosphere turned sour in fourth quarter of last year when negative news from European telecom sectors crept into the market.
France Telecom in January issued its second profit warning in three months. Vodafone, the world's largest mobile operator by sales, gave a gloomy outlook with fiscal first-half results last November.
Hutchison began 3G operations in the U.K. and Italy in March 2003, becoming the first company to offer such services in Europe. It has since launched 3G in Hong Kong, Australia, Austria, Ireland, Denmark, Sweden and Israel.
The company had said it may list its 100%-owned U.K. 3G business following 3 Italia's listing. Fok didn't comment on the schedule of listing the U.K. 3G unit, but reiterated he wants to spin off its Italian unit first.
Hutchison shares fell 3% over the past six months, compared with a 1% rise in the benchmark Hang Seng Index over the same period.
The stock, weighed by the overhang of a 3 Italia listing, ended at HK$75.90 Friday.
Steven Leung, director of institutional sales at UOB Kay Hian, said the selling of a 3 Italia stake to Goldman Sachs is a technical way to solve the problem. It allows Hutchison to convey a message to the market that the Italian unit manages to secure a reasonable enterprise value of EUR9 billion.
"Downside of Hutchison shares should be limited and may even removes overhang in the short-term," said Leung.
Another analyst who declined to be identified agreed Hutchison's current share price has not fully reflected positive aspects of the firm's business, such as the strong operation in Husky Energy Inc. (HSE.T) which recently reported a 200% jump in fourth-quarter net earnings on year.
A fund manager working for a global fund management said delaying the IPO could remove worries of a lacklustre debut amid weak market sentiments, but the overhang will remain with Hutchison in the longer-term.
-By Joyce Li, Dow Jones Newswires; 852-2802-7002; joyce.li@dowjones.com
(END) Dow Jones Newswires "
Posted to the site on 11th February 2006
