Vodafone and Three agree mega-merger

Vodafone and old rival Three have finally agreed on a merger that would create Britain’s largest mobile operator.

The combined group, valued at around £15bn – a figure higher than BT – will be led by Vodafone UK chief executive Ahmed Essam with Three UK’s Darren Purkis as head of finance.

The deal, which would see no money change hands, will give Vodafone a 51 percent stake, while Three owner CK Hutchison Group will take a 49 percent stake – if approved by regulators.

Vodafone and CK Hutchison, who have been in talks since October, have committed to invest £11bn in the UK over ten years ‘to create one of Europe’s most advanced stand-alone 5G networks’.

The new company, whose brand name has yet to be revealed, said it would reach more than 99 per cent of the UK population with its 5G offering, giving customers an “up to six-fold increase” in average data speeds by 2034.

It would serve about 28 million customers, more than EE and Virgin Media O2.

Analysts have said a merger could transform Three, which has struggled to compete with its larger rivals and failed to progress from its position as Britain’s fourth largest mobile operator.

The companies claim the deal will give “millions” of customers “a better networking experience…at no extra cost.”

It will provide 82 percent of households with fixed wireless access or mobile broadband by 2030.

The companies say the combined 5G network will deliver ‘up to’ £5 billion a year in economic benefits for the UK by 2030, create jobs and support the country’s digital transformation.

For the companies themselves, the transaction is expected to deliver more than £700 million in annual cost and capital spend synergies in its fifth full year after completion at the end of 2024.

Margherita Della Valle, CEO of the Vodafone group, said: ‘The merger is great for customers, great for the country and great for the competition.

“It is transformative because it will create a best-in-class – even best in Europe – 5G network that will deliver a superior experience to customers.

‘For Vodafone, this transaction is a game changer in our home market. This is a vote of confidence in the UK and its ambitions to be a hub for future technology.”

Canning Fok, co-managing director of CK Hutchison’s group, added: ‘Three UK and Vodafone UK currently lack the necessary scale to earn their cost of capital.

“This has long challenged Three UK’s ability to invest and compete.

“Together we have the scale needed to deliver a best-in-class 5G network for the UK, transform mobile services for our customers and create new opportunities for businesses across the length and breadth of the UK .

“This will unlock significant value for CK Hutchison and its shareholders, realize material synergies, reduce net financial debt and further strengthen its financial profile.”

The regulator may, however, be concerned about weakened competition.

Victoria Scholar, of Interactive Investor, said: ‘Shares in Vodafone have soared following the announcement, reflecting investor excitement over the benefits of this partnership following lengthy talks since last year.

This will likely be Della Valle’s biggest achievement to date in the top role if the deal crosses the line.

But first the merger must be approved by regulatory authorities, which could be a daunting task given likely concerns about reduced competition and consumer choice.

“In 2016, UK and European regulators blocked an acquisition of O2 by Three, citing concerns about higher prices.”