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By Pamela Barbaglia and Francesca Landini
LONDON/MILAN, Aug 4 (Reuters) - Russia's Vimpelcom and Hong Kong's Hutchison Whampoa are close to a dealto merge their Italian mobile phone businesses, sources close tothe deal said.
A deal would help end a long and costly price war amonglocal mobile operators in Europe's fourth-largest telecomsmarket.
Talks between the two companies had gathered pace in recentweeks and an announcement could come as early as this week, oneof the sources said.
"Negotiations have become serious," a second source said,adding that Hutchison Managing Director Canning Fok had met withVimpelcom counterparts in London several times this month.
Spokesmen at Vimpelcom and Hutchison declined to comment.
Amsterdam-based Vimpelcom will present its quarterly resultsin London on Thursday. The two companies acknowledged in Maythat they were negotiating on a joint venture.
Any deal would need antitrust clearance, the sources said.But since European and national regulators have already giventhe green light to similar deals in Ireland, Germany andAustria, Italian consolidation is also expected to pass muster.
The deal would combine Vimpelcom's WIND Telecommunicazioni,the country's third-largest mobile network operator, withfourth-placed 3 Italia, creating a market with three almostequally sized players in terms of mobile service revenues.
The merger would likely benefit the whole market, butespecially former phone monopoly Telecom Italia. Itwould allow companies to increase investments in upgrading theirnetworks rather than focusing on cutting prices to win marketshare, telecoms executives and analysts say.
Analysts estimate shares of Telecom Italia, which makes twothirds of its revenue in its home market, could receive a boostof 0.08-0.20 euro if its rivals merge. That would lift thecurrent share price by up to 15 percent.
COMPROMISE EFFORTS
Hutchison Chairman Li Ka-shing and Russian billionaireMikhail Fridman - whose LetterOne fund holds 47.9 percent ofVimpelcom's voting rights - have held on-off talks for years andcame close to clinching a deal a few times before scrapping itat the eleventh hour over governance control.
But they were making new efforts to find a compromise andbridge differences over the capital structure and governance ofthe merged entity, one of the sources said.
A capital increase at the merged entity was an option underconsideration, the source said, although no final decision hadbeen made.
A cash call would help service WIND's debt of 8.9 billioneuros ($9.74 billion), which has been a hurdle to a deal.
A banker close to Hutchison said the Hong Kong-basedtelecoms operator "is effectively in acquisition mode" after itagreed to acquire British mobile phone business O2 fromTelefonica in January.
The Hong-Kong based company would seek to retain control ofany merged entity by securing the majority of its voting rights,he said.
Hutchison has only one other joint venture deal. It holds a50 percent stake in Australia in partnership with Vodafone. Its other European operations in telecommunications, including in Britain, Austria, Ireland, and Switzerland, arewholly owned by Hutchison.
Vimpelcom, which is advised by Morgan Stanley andHSBC, said in May it was in discussions with Hutchisonregarding a possible "equal" joint venture in Italy but addedthere could be no assurances an agreement would be signed.
Hutchison, which is advised by Goldman Sachs, also confirmedthe talks in May.
($1 = 0.9135 euros) (Additional reporting by Danilo Masoni; editing by SusanThomas)
