EU Opens Probe into Hutchison’s $14 Billion Telefónica U.K. Deal
Sale of Britain’s mobile operator 02 could undermine competition warns commission
BRUSSELS—Europe’s top antitrust regulator has opened a full-blown investigation into Telefonica SA’s $14 billion sale of British cellphone operator O2, warning that the mobile-telecom merger could lead to higher prices and less choice for U.K. customers.
The move follows a series of warnings from top European Union officials, including the bloc’s antitrust chief Margrethe Vestager, that mobile-phone mergers in already concentrated markets risked harming consumers. Scandinavian telecom operators Telenor ASA and TeliaSonera AB abandoned plans to combine their Danish operations in September after failing to secure approval from EU authorities.
The European Commission, the bloc’s executive arm, said Friday that the sale of O2 to Hong Kong tycoon Li Ka-shing’s CK Hutchison Holdings Ltd. would create the largest mobile-network operator in the U.K., potentially removing an important competitor. O2 is Britain’s second-largest mobile operator, and Hutchison already owns the fourth-largest operator, Three U.K.
“The commission has concerns that the transaction would remove an important competitive force and that the merged entity would have limited incentives to exercise significant competitive pressure on the remaining competitors,” it said.
Britain’s telecom regulator Ofcom also expressed misgivings about the merger, warning in a statement that it could lead to higher prices and reduced customer choice.
“The deal could undermine important aspects of the U.K. market, such as shared networks and high street retail competition, which have helped deliver good results for mobile users over many years,” an Ofcom spokeswoman said. “Once competition is weakened, it is hard to re-establish.”
Ofcom said it had explained its concerns to the European Commission and would continue to engage with its review.
The commission now has until March 16, 2016, to investigate the proposed acquisition and to decide whether to approve it, or ask the companies for concessions to ease its concerns. If it fails to reach an agreement on how to bring the acquisition in line with EU competition rules, the commission can also decide to block the merger.
“With this investigation we want to ensure that consumers in the U.K. don't pay higher prices or face less choice as a result of this proposed takeover,” Ms. Vestager said.
Hutchison said it has had open and constructive discussions with EU regulators, and is “confident that the acquisition will be approved.”
“We believe the transaction will be good for both competition and consumers in the United Kingdom,” the company said.
Telefónica couldn’t immediately be reached for comment.
The merger is the latest in Europe that would reduce the number of mobile-telecom operators in a given country from four to three. A similar merger is in the works in Italy, where Hutchison agreed to merge its 3 Italia business with the Italian operations of Amsterdam-based telecom firm VimpelCom Ltd.
Joaquín Almunia, the EU’s antitrust chief until late last year, cleared several of these four-to-three mergers in Austria, Ireland and Germany. But the first such deal to be reviewed under Ms. Vestager’s watch, in Denmark, was abandoned last month after resistance from Brussels.
Telecom operators have criticized that decision, arguing that the European market is too fragmented, and they should be allowed to merge with rivals in the same country to increase investment in networks and share costs.
However, top commission officials have focused increasingly on the need for competition in EU telecom markets. In an interview with The Wall Street Journal last week, Ms. Vestager said Europe’s telecom market is already “quite consolidated.”
“Relaxing competition rules isn't the answer” to attracting investment in Europe’s telecom networks, the EU’s digital chief Andrus Ansip said earlier in October.
Closing Market Summary: Stocks End Strong Month on Cautious NoteThe stock market ended the week on a lower note, but that did not stop the S&P 500 from posting its largest monthly gain since October 2011. The benchmark index lost 0.5% on Friday, but surged 8.3% for the month while the Nasdaq Composite (-0.4%) outperformed, spiking 9.4% in October.
Broadly speaking, the Friday session was very quiet with the market showing a modest loss during morning action, which turned into a slim afternoon gain; however, a late slide from session highs ensured a lower finish for the S&P 500.
Despite the lower finish, only five of ten sectors posted losses, but relative weakness in heavily-weighted groups like financials (-1.3%), technology (-0.8%), and consumer staples (-1.1%) was enough to keep the market pressured.
The financial sector retreated throughout the day, narrowing its October gain to 6.1%. Meanwhile, the top-weighted technology space (-0.8%) also underperformed, but the influential sector surged 10.7% in October. Large cap names like Apple (AAPL 119.50, -1.03), Google (GOOGL 737.39, -7.46), and Microsoft (MSFT 52.64, -0.72) struggled on Friday, masking relative strength in the PHLX Semiconductor Index, which rose 0.9%. ON Semiconductor (ON 11.00, +0.72) was a notable standout, soaring 7.0%, in reaction to better than expected results.
Elsewhere, the consumer staples sector (-1.1%) retreated amid disappointing earnings and/or guidance from Colgate-Palmolive (CL 66.35, -2.88), CVS Health (CVS 98.78, -5.02), and Boston Beer (SAM 219.42, -25.52). The three names lost between 4.2% and 10.4% while the broader sector narrowed its October gain to 5.6%.
On the flip side, the energy sector (+0.7%) finished in the lead after struggling at the start. However, the sector climbed during the afternoon to extend its October gain to 11.3%. Crude oil contributed to the afternoon rally as WTI crude rose 1.2% to $46.60/bbl while earnings also played a part. To that point, Chevron (CVX 90.88, +0.99), ExxonMobil (XOM 82.74, +0.51), and Phillips 66 (PSX 89.10, +2.67) all delivered better than expected results.
Unlike stocks, Treasuries spent the bulk of the day in the green with the 10-yr yield slipping three basis points to 2.15%.
Today's participation was ahead of average with more than a billion shares changing hands at the NYSE floor with month-end flows contributing to the increased activity.
Economic data included Employment Cost Index, Personal Income/Spending data, Chicago PMI, and Michigan Sentiment:
- Employment costs increased 0.6% in Q3 2015, up from a 0.2% increase in the second quarter while the consensus expected an increase of 0.5%
- Despite the big quarterly gain, year-over-year trends were unchanged with total compensation increasing only 2.0% in the third quarter, which matched the rate of increase from the second quarter
- Personal income increased 0.1% in September after increasing an upwardly revised 0.4% (from 0.3%) in August while the consensus expected an increase of 0.2%
- Personal spending rose 0.1% in September after increasing 0.4% in August while the consensus expected an increase of 0.2%
- The Chicago PMI increased to 56.2 in October from 48.7 in September while the consensus expected an increase to 49.0
- That was the best reading in the Chicago PMI since reaching 59.4 in January
- The Production Index increased to 63.4 in October from 43.6 in September, representing the largest one-month gain since August 2014
- The University of Michigan Consumer Sentiment Index was revised down to 90.0 in the final October reading from 92.1 in the preliminary report while the consensus expected a revision up to 92.6
- Despite the downward revision, sentiment remains stronger than the final September (87.2) level
- The Current Conditions Index was revised down to 102.3 in the final October reading from 106.7 while the Expectations Index was revised down to 82.1 from 82.7
