Hutch to buy Orange Austria as Asia firms shop in Europe

Hong Kong's Hutchison 3G will buy Orange Austria from France Telecom and a private equity fund in a deal valued at €1.3 billion ($1.7bn) including debt, expanding the corporate footprint of Asia's richest man in Europe.

The deal by the unit of Hutchison Whampoa follows a cluster of outbound M&A transactions from Asia in early 2012 as firms with strong cash piles and low debt buy assets in Europe, where economies are struggling with the debt crisis.

Hutchison said on Friday it would buy 100 per cent of Orange Austria, confirming an earlier Reuters story. Hutchison shares rose as much as 3.8 per cent to HK$76.20 on the news, bucking a flat overall market.

Hutchison, controlled by Hong Kong billionaire Li Ka-shing, has been shopping for regulated infrastructure and utility assets in developed countries, especially Britain, which is open to foreign ownership of its infrastructure assets.

"It is definitely a positive for the future development as the acquisition cost can be lower in the current economic climate," said Conita Hung, head of equity research at Delta Asia Financial Group.

"It is a good opportunity for those financially strong companies to buy assets in Europe, especially if they believe in the strong growth prospect," she said.

Li's business empire bought British utility Northumbrian Water Group for £2.41bn ($3.81bn) last year, having paid 5.8 billion pounds to buy the British electricity distribution network of France EDF in 2010.

Li, a high-school drop-out nicknamed "Superman" by Hong Kong media for his deal-making savvy, started out with a plastic flower business and now has a global empire with 26,000 employees in 55 countries.

So far in 2012, Asian corporates have launched about $9.3bn worth of outbound deals, compared with $181 billion worth transactions attempted the whole of last year, according to Thomson Reuters data.

High-profile deals this year include Shandong Heavy Industry Group's purchase of a 75 per cent stake in debt-laden Italian yacht-maker Ferretti Group and China Investment Corp's purchase of an 8.7 per cent stake in the holding company of Thames Water, the privately held UK utility.

Hutchison 3G Austria already operates under the '3' brand, competing against Deutsche Telekom AG's T-Mobile and A1.

Hutch said the deal would make it Austria's third-biggest mobile phone operator, with 2.8 million customers and a 22 per cent market share, and the two units had combined revenues of more than 700 million euros in 2011.

"Overall, we do think the deal offers one of the few relatively visible paths to long-term sustained profitability for 3 Austria," Bank of America/Merrill Lynch said in a report.

As a second leg of the deal, Hutchison will sell some of Orange Austria's assets to Telekom Austria for £390 million, Telekom said separately.

The assets comprise frequencies, base station sites, mobile phone operator YESSS! Telekommunikation GmbH and certain intellectual property rights, the statement added.

Hutch's net consideration is €900m, giving the business an enterprise value to Ebitda multiple of 6.9 times.

Bank of America/Merrill Lynch said that the multiple paid by Hutch "is at the high end of comparable private transaction multiples, but below the 7.6 previously speculated."

For France Telecom, the sale would be the second deal in an ongoing portfolio review aimed at exiting low-growth mature markets and returning cash to shareholders. It recently agreed to sell Orange Switzerland to private equity group Apax Partners for about €1.6bn.

Orange Austria is jointly owned by France Telecom and Mid-Europa Partners. France Telecom could not be reached for a comment.

Hutchison also owns 3G wireless network operations in Britain, Italy and Australia, among other countries. It competes with Britain's biggest mobile operator, Everything Everywhere - a joint venture of Orange and T-Mobile - Telefonica SA's O2 and Vodafone Group Plc.

The wireless business had been losing money over the past decade but broke even in the second half of 2010, and recovered further last year. Hutchison said it was expected to contribute to the conglomerate's profits in the second half of 2011.

JP Morgan advised Hutchison group on the purchase, while Morgan Stanley advised the sellers, a source familiar with the process said. The source was not authorised to speak to the media.