EC greenlights 3 Italia and WIND merger

Possibly affecting CK Hutchison share price positively.

It has been noted that the European Commission's approval of the 3 Italia/WIND merger should be positive for CK Hutchison's share price.

According to a research note from Jefferies, though, it believes the market may have anticipated this decision and have at least partially discounted the share price. That said, the formation of the JV should be NAV accretive. 

On Sep 1, the European Commission announced its decision to approve the formation of the JV between 3 Italia and WIND. Although the EC decision was the major hurdle, the final completion of the merger is subject to obtaining Italian regulatory approvals. The Italian government had previously state that it is in favor of the merger and hence the final approval is expected to complete in the fourth quarter of 2016.

Here's more from Jefferies:

New competitor helps to address EC concerns. The recent emergence of Iliad as a new fourth competitor in the Italy mobile market was probably the deciding factor in the EC's ruling. As part of the EC's decision, we believe that some assets would be sold to Iliad although the specifics of the asset disposal have not been disclosed.

Synergistic merger. According to VimpelCom, WIND’s parent company, the combined business is expected to generate significant Capex and Opex benefits with a net present value, less integration costs, in excess of €5bn. €1.3bn of the synergies will come from the rationalization of the marketing and customer facing operations, €3.1bn from network consolidation and €0.6bn from a rationalization of SG&A. VimpelCom expects annual cost synergies of €700mn and EBITDA margins to improve from 32% to 40%.

Terms unknown but should be NAV accretive. Without the terms of the asset disposal, it is difficult to estimate the impact to the NAV value although we suspect that the uplift to CKH's NAV would be between 5% and 10%.We noted previously that 3 Italia's 1H16 operations suggested a turnaround even before the merger with WIND.