Vodafone and Three inch towards £15 billlion deal

The on-again, off-again rumours about a UK mobile mega-merger might actually arrive at some sort of conclusion soon.

Vodafone and Three parent CK Hutchison are on the cusp of reaching a deal to merge their operations, creating a new mobile market leader with 28 million customers. So says the Financial Times anyway, which reported (paywall) – citing no fewer than three anonymous sources – that an agreement could be announced this month.

The deal under discussion values the merged entity at £15 billion, comprised of £9 billion of equity and £6 billion of debt.

Telecoms.com has followed the scent of more than its fair shareof rumours pertaining to this potential tie-up, and this one appears to carry a stronger whiff of credibility.

Reason being, previous reports have tended to be somewhat lighter on detail than this week’s offering. They have generally cited people familiar with matters who are able to claim that talks between the two sides have taken place, but are unable to offer up anything more substantial.

Even when Vodafone confirmed in October 2022 that it was discussing a merger with Three that would see Voda control 51 percent of the combined company, the abrupt departure of CEO Nick Read just two months later seemed to return talk of a tie-up to the back burner.

These new rumours put more meat on the bones, not only divulging the enterprise value of the combined company, but also alleging that the agreement would pave the way for CK Hutch to sell its 49% stake in Voda-Three to Vodafone, allowing it to exit the UK entirely.

The timing of this FT piece is perhaps the biggest signal of credibility, because it arrives just a week after interim Vodafone CEO Margherita Della Valle was given the job on a permanent basis, ending months of uncertainty over who would be at the helm. New CEOs tend to lay out their strategy shortly after their appointment, and doubtless Della Valle will share hers soon enough.

Also, last month a Reuters report claimed that CK Hutchison’s co-managing director Canning Fok had met with UK government officials in an effort to garner political support for a merger with Vodafone. That came just days after the government itself said that when it comes to the rollout of 5G, it wants to adopt a pro-investment framework, and that there is no ‘magic number’ of mobile operators.

In addition, UAE-based operator e&, which has been steadily increasing its stake in Vodafone since last May, recently raised its holding again, bringing it up to 14.6 percent. A Bloomberg report at the time suggested e& was beginning to lobby for changes to Voda’s board, citing a regulatory filing which said the two sides had held discussions “on a variety of topics.”

Despite the government’s ambivalence about the number of telcos, a tie-up would still be heavily scrutinised by the Competition and Markets Authority (CMA) because it would reduce the number of wholesale mobile network operators in the UK to three from four. There is also a national security angle, what with CK Hutchison being based in Hong Kong. However, according to the FT’s sources, Vodafone and Three are confident that giving Voda majority ownership will lay to rest any concerns on that particular front.

So, with Vodafone now having a permanent CEO, and the government now appearing more open to the idea of consolidation, and with Voda’s biggest single shareholder beginning to wield its influence, it’s not unreasonable to suggest that the time is right to announce something big.

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