CK Hutchison still in active talks with EU commission over O2 acquisition

It's saying the acquisition will be synergistic.

CK Hutchison management has said that it is still in active discussions (and will continue to be for the next few weeks) with the EU commission regarding the acquisition of O2 in the UK.

According to a research note from Jefferies, further,  all avenues of remedies were still possible. CKH argues that the acquisition will be synergistic for UK consumers in that the spectrum of the combined entity will allow it to cover 99% of the UK.

CKH has further committed not to raise rates (voice or data) over the next 5 years if the merger were to go through. Management reviewed that it is considering a sale of a stake in 3UK to a new investor (on top of the 5 institutional investors previously disclosed) with a view to further reduce the cash needed to fund the acquisition of O2.

CKH announced its FY15 results. On a management pro-forma basis, revenues were HK$396bn, EBIT was HK$62,079 mn and net profits were HK$31,168 mn. No FY14 comparable figures are available. All the numbers were inline, although the 3G numbers were better than expected, while retail was worse.

Here's more from Jefferies:

What’s more, CKH is considering initially running 3UK and O2 as separate entities on the front end (customer service and marketing) while combining the back end. To us, this seems like a tactic to appease the regulators. Surprisingly, CKH said that it will not go back to Telefonica to renegotiate the price of O2, should the EU require massive concessions. A further surprise is that despite the possible concessions, it still expects the merger synergies to be the same as before (£3-4bn). We await the EU decision which is now expected next month.

At the operational level, revenues from 3 Group Europe declined -4% YoY in HK$ terms but grew 10% YoY in local currency terms. The revenues were 1.4% higher than our expectations. The EBIT from 3 Group Europe grew 69% YoY to HK$11,664 mn, higher than our forecast by 34%. In local currency terms, the growth in EBIT would be 92%. This was mainly driven by better than expected mobile revenues in the UK and Austria as well as better than expected service margins across the board, but especially in the UK. In the UK, service margins were 87% (compared to the 80% in 2014) and compared to our forecast of 85%.

Revenues from the retail segment fell 3% YoY in HK$ terms but grew 5% in local currency terms. The revenues were 9% below our forecasts. The number of Health & Beauty stores was 11,906 at the yearend, in line with expectations. The revenue per store fell across all the geographic regions due to negative currency affects and to a decline in the SSSG particularly in China. China SSSG was -5.1% YoY, compared to the +3.9% in FY14 and the 0.1% in 1H15. This may be due to the slowing Chinese economy. EBIT fell 5% YoY in HK$ terms but grew 4% in local currency terms. EBIT was lower than our forecasts by 11%. The EBIT margin of 8.1% was in-line with our forecasts. Management will follow the same pace of expansion in new store openings, especially in China.