Hutchison Whampoa Ltd is in talks that may lead to the acquisition of Orange Austria, the mobile-phone operator owned by France Telecom SA and private-equity firm Mid Europa Partners, people familiar with the process said on Tuesday.

An agreement may be reached before year-end, one of the people said, declining to be identified because talks are private. The target could be valued at about 1 billion euros ($1.4 billion), according to Will Draper, an analyst at Espirito Santo in London.

A purchase would combine Orange Austria with Hutchison's 3 unit, joining the third- and fourth-largest operators and improving the Hong Kong company's ability to compete in the country of 8.2 million people. Cellular-phone operators are looking to consolidate in Europe as stagnant sales growth and expanding regulation slice into profits.

"We see consolidation as positive," said Adrian Lowe, a Hong Kong-based analyst at Mirae Asset Securities Ltd. "Given that they are already in Austria, this can help reduce competition," Lowe said referring to Hutchison's presence in the country through unit 3.

Jeremy Lau, a Hong Kong-based spokesman for Hutchison Whampoa, controlled by the billionaire Li Ka-shing, declined to comment on the story, as did spokesmen for France Telecom and Mid Europa.

Telekom Austria AG and Deutsche Telekom AG's T-Mobile Austria are the country's top two operators.

Orange Austria is 65 percent-owned by Mid Europa Partners, with the rest held by France Telecom, according to the French company's annual report last year. The unit posted sales of 578 million euros in 2010, down from 595 million euros the year before and 615 million euros in 2008. While sales have fallen, Orange Austria is coming closer to profitability, reporting a net loss of 9 million euros in 2010, compared with a 32 million euro loss the year before.

In October 2007, the Austrian mobile carrier, then known as One, went through a leveraged buyout that raised France Telecom's stake from 17.45 percent to 35 percent. That deal valued One at 1.4 billion euros.

The two buyers agreed to a lockup period that ended October 2; since then they have been free to transfer their shares, and France Telecom has a right to buy Mid Europa's until June 21, 2013. The approach of the lockup's expiration has stirred speculation for months.

The talks between Hutchison and the owners of Orange Austria were reported earlier by the Austrian news outlet News.at.

Bloomberg

(HK Edition 10/26/2011 page2)