Holy crap! This press release from Vodafone took me completely by surprise. Vodafone and 3 will be merging their operations in a 50:50 partnership in Australia. They will continue to use the Vodafone brand name, although they retain the exclusive rights to maintain and use the 3 brand during the transition (expected to be completed by mid-2009) and thereafter.
So what exactly does this mean for current Vodafone and 3 customers? We're not 100% certain just yet - we've put in the call and we're waiting to hear back from various people. We'll keep you posted as soon as we know more. In the meantime, you can read the press release for yourself below the fold.
HUTCHISON AND VODAFONE AGREE TO MERGE AUSTRALIAN TELECOM OPERATIONS TO FORM A 50:50 JOINT VENTURE Vodafone and Hutchison Telecommunications (Australia) Limited ("HTAL"), a listed subsidiary of Hutchison Whampoa Limited ("Hutchison Whampoa"), announced today an agreement to merge their telecommunications businesses in Australia, Vodafone Australia Limited ("Vodafone Australia") and Hutchison 3G Australia Pty Limited ("H3GA"), which delivers its mobile services under the "3" brand. Both Vodafone and HTAL will have an equal ownership of 50% in the joint venture, which will be renamed VHA Pty Limited ("VHA"). VHA will market its products and services under the Vodafone brand, but will retain exclusive rights to use the 3 brand in Australia during a transition period and thereafter. To equalise the value difference between the respective businesses, Vodafone will receive a deferred payment of A$500 million from VHA.
Commenting on the transaction, Vittorio Colao, Chief Executive of Vodafone, said: "This transaction will benefit customers in Australia as it creates a company with the necessary scale to compete strongly in the mobile market. Customers can look forward to a wider portfolio of voice and data services, delivered under the Vodafone brand over a high quality network, which through ongoing investment will bring 3G coverage to around 95% of the population. This is an important step in the transformation of the Australian mobile industry."
Canning Fok, Group Managing Director of Hutchison Whampoa and Chairman of HTAL said: "Since its inception, 3 has established a track record of innovation - from challenging the status quo by launching Australia's first 3G network with new services such as mobile TV and mobile internet, to changing the market with the introduction of cap plans. Combining with the strengths of Vodafone in Australia means that our partnership will deliver leading propositions, products and services to Australian businesses and consumers across the full range of their mobile communications needs."
Transaction benefits * The transaction creates a stronger mobile operator better positioned to compete in the Australian telecommunications market with approximately 6 million customers and combined total revenues of approximately A$4 billion for the twelve months ended 30 June 2008. * Utilising existing network arrangements and planned network build, VHA will operate an advanced and comprehensive mobile network with at least 95% population coverage, of which 63% will have access to high speed 3G services. Upon completion of additional network roll outs, VHA's 3G population coverage is planned to increase to 95%. * Drawing from the best offerings of both Vodafone and 3, VHA will have an even broader product offering, and will continue to provide innovative consumer and business services to the Australian market. * 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. * The transaction is expected to be enhancing to HTAL's and Vodafone's adjusted earnings per share, as well as to the consolidated EBIT performance of Hutchison Whampoa's 3 Group, from the first full year post completion (after synergies and excluding the impact of intangible asset amortisation and one-off 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 receive an annual brand licensing fee from VHA equivalent to 1% of service revenues.
Following completion of the transaction, Vodafone, HTAL and Hutchison Whampoa will account for VHA as a joint venture.
Board approval and HTAL Directors' recommendation The HTAL Board considers that the transaction is in the best interest of HTAL shareholders and has unanimously recommended that HTAL shareholders vote in favour of the transaction (and intend to vote any HTAL shares they own in favour of the transaction) subject to no superior proposal emerging and the independent expert determining that the transaction is fair and reasonable for HTAL shareholders.
Implementation Agreement The parties have entered into an Implementation Agreement that provides for exclusivity, break fees, and a standstill over Hutchison Whampoa's shares in HTAL. These arrangements are summarised in the attachment to this release.
Conditions to completion 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.
HTAL shareholders will be asked to approve the transaction and it is expected that an extraordinary general meeting will be held in April 2009 to enable HTAL shareholders to vote on the transaction. HTAL shareholders will shortly be sent a Notice of Meeting and Explanatory Statement (including an independent expert's report on the transaction) which will contain detailed information relating to the transaction, including the basis for the HTAL Directors' recommendation. - ends -