Vodafone may combine Greek unit, Wind Hellas

Vodafone Group Plc has begun talks about a potential combination of its Greek unit with Wind Hellas Telecommunications SA to rival market leader Cosmote Mobile Telecommunications SA controlled by Deutsche Telekom AG.

“Discussions are at an early stage and there is no certainty as to whether an agreement will be reached,” Vodafone said in an email yesterday. In a separate statement, Athens-based Wind Hellas confirmed that shareholders are in talks to explore a potential business combination with Newbury, England- based Vodafone, the world’s largest wireless company.

A merger of Vodafone Greece, the country’s second-largest mobile-phone operator with almost four million customers as of June 30, and Wind Hellas, the third-biggest, would give Vodafone Chief Executive Officer Vittorio Colao an enlarged subscriber base to compete with Cosmote, a unit of Hellenic Telecommunications Organization SA, the operator known as OTE. Deutsche Telekom in June raised its stake in OTE to 40 per cent.

“Even before the crisis it was questionable whether investing in Greece would be wise,” said Heinz Steffen, an analyst at Fairesearch GmbH in Kronberg, Germany. “With the current situation there I’m really not sure that getting deeper into the market makes sense.”

Vodafone dropped 0.1 per cent to 161.80 pence as of 9.09 am in London trading while the U.K. benchmark FTSE 100 index gained 2.5 per cent.

Shareholders
Greece sought and received a ¤110-billion ($159 billion) bailout from its European Union partners in May 2010 as concerns the country would default on its debts spurred borrowing costs to a record. The government is implementing austerity measures in return for the loans and the wage and pension cuts and higher taxes have damped consumer spending.

OTE, which reported a total of 7.73 million wireless customers as of June 30, is in talks with workers to cut payroll and other expenses as a third year of recession in Greece crimped sales and profit at the Athens-based phone company. Bonn-based Deutsche Telekom has written down the value of its Greek investments.

Wind Hellas is controlled by a group of bondholders who led a reorganisation last year by injecting ¤420 million and writing off debt in exchange for control of the company. The group includes Mount Kellett Capital Partners (Ireland) Ltd, Taconic Capital Advisers UK LLP, Providence Equity Capital Markets LLC, Anchorage Capital Group LLC, Angelo Gordon & Co and Eton Park International LLP.

‘No Guarantee’
The operator had 3.88 million wireless customers as of September 2010, according to the most recent quarterly report posted on the company’s website. Wind Hellas currently has about four million wireless and fixed customers combined, said a company spokesman who asked not to be named, citing company policy.

Former parent, Weather Finance III Sarl, the holding company of Egyptian billionaire Naguib Sawiris, had previously bought Wind Hellas out of bankruptcy.

Vodafone may acquire Wind Hellas for about ¤1 billion, Proto Thema reported yesterday, without saying where it got the information. In its statement, Vodafone said reports that it’s in talks to acquire Wind Hellas for cash are “incorrect.”

“At this point in time there is no guarantee these talks will conclude in an agreement,” Wind Hellas said.

A combination of the two operators would make the Greek market a duopoly with “more rational pricing and huge synergies” that would also be positive for OTE, said Robin Bienenstock, an analyst at Sanford C Bernstein in London.

Earlier this month, Vodafone sold a stake in its Indian unit for $640 million, a deal that put the UK company back into compliance with rules limiting foreign ownership.

Last month, Vodafone said it would receive a £2.8-billion ($4.6 billion) dividend from Verizon Wireless, the US venture in which it owns a 45 per cent stake.