Vodafone, Hutchison Whampoa to Merge Australian Networks

Vodafone and Hutchison Whampoa have announced plans to merge their Australian networks to form a single mobile operator. Both companies will own 50% of the joint venture - which will retain the Vodafone brand name, although they retain the rights to the "three" brand as well. To equalise the value difference between the respective businesses, Vodafone will receive a deferred payment of A$500 million (US$337 million) from the joint venture company, VHA (Vodafone Hutchison Australia).

Utilising existing network arrangements and planned network build, VHA will operate a mobile network with at least 95% population coverage, of which 63% will have access to 3G services. Upon completion of additional network roll outs, VHA's 3G population coverage is planned to increase to 95%.

Based on figures from the Mobile World subscriber tracker, the merged firm would ended last September with a shade over 6 million customers - representing 26.3% of the market. It will still be the smallest of (now) three operators in the country - close behind Optus' 7.4 million and Telstra's 9.5 million customers.

The companies say that the in-market nature of the transaction is expected to create significant value. Economies of scale across procurement, product development, IT, network, commercial operations and administrative expenses are expected to deliver significant cost savings. The net present value of operating expense and capital expenditure synergies is currently expected to be in excess of A$2 billion, net of integration costs.

Management

The Chairman of VHA will be Nick Read (CEO of Vodafone Asia-Pacific & Middle East Region), the CEO will be Nigel Dews (currently CEO of HTAL and H3GA) and the CFO will be Dave Boorman (currently CFO of Vodafone Australia). Russell Hewitt (currently CEO of Vodafone Australia) will be a non-executive Director of VHA.

Other transaction considerations

The A$500 million deferred payment 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 arm's length basis and is expected to be repaid or refinanced within 18 months from completion.

Vodafone will also receive an annual brand licensing fee from VHA equivalent to 1% of service revenues.

The transaction is expected to close by mid-2009, subject to the approval of the Foreign Investment Review Board, clearance from the Australian Competition and Consumer Commission and HTAL shareholders' approval.

On the web: Mobile World - Vodafone Australia - Three Australia

Posted to the site on 9th February 2009