Vodafone (VOD.L) and CK Hutchison, the owner of Three UK, finally unveiled the merger of their British operations on Wednesday, pledging to create the country’s largest mobile operator to boost competition and invest $14 billion in the country. The companies said Vodafone would own 51% and Hutchison 49% of the combined group, which current Vodafone UK boss Ahmed Essam will lead. The deal comes as millions of customers on all networks face double-digit rises in their bills, focusing regulators’ minds on retaining a competitive market.
The companies plan to create a new network that will have the capacity to serve 27 million customers, which would relegate BT-owned EE to second place and surpass Virgin Media O2, which Telefonica and Liberty Global own. The deal, subject to regulatory review, is expected to close before the end of next year. It will also include Vodafone’s purchase of 6,000 passive telecom infrastructure sites from CK Hutchison in the United Kingdom, which will help it reach 99% of the population with a standalone 5G network by 2034, the companies said.
But the Competition and Markets Authority is likely to express concerns that a Vodafone-CK Hutchison combination could lead to weaker competition in the country’s already-concentrated market, according to a source familiar with the matter. The source said the CMA would also consider whether the deal may require divestment of some of Vodafone’s assets, such as spectrum licenses and other sites that might overlap with CK Hutchison’s network.
The sources said Both companies are likely to be asked to submit detailed plans for how they will manage the merger and its integration to persuade the CMA that the deal is in the public interest. The two companies expect to generate annual cost and capital expenditure synergies of more than PS700 million by the fifth full year after completion, expected before the end of 2024.
The merger will give Vodafone a more diversified presence in Europe, where it has struggled to gain traction since the start of the decade, while Hutchison has been building up its presence in mobile broadband and other technologies. But Vodafone needs help to improve its return on invested capital amid pressure from activist investors, including French billionaire Xavier Niel, who recently acquired a 2.5% stake in the company. Its shares have dropped 11% this year and more than 50% in the past five years. Vodafone’s chief executive Margherita Della Valle called the merger “great for customers, great for the country, and great for competition.” The merged business will be based in London, while Hutchison’s headquarters are in Hong Kong. Vodafone’s share price rose 3.6% after the news. Hutchison’s stock was up 4.4%.
