Vodafone and Hutchison announce $19bn mobile merger

September 2023 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

September 2023 Issue

In a deal which will create a new market leader in the UK, Vodafone and CK Hutchison have announced the $19bn merger of their British mobile telephone businesses.

Upon completion of the deal, Vodafone will be the majority owner of the combined enterprise with 51 percent of the equity. Vodafone will have an option to buy out CK Hutchison’s share of the business three years after completion, if it agrees.

The deal, if approved by regulators, will see the newly combined company leapfrog EE, which is owned by BT, and Virgin Media O2, which is owned by Spain’s Telefónica and US-listed Liberty Global, to become the UK’s largest mobile phone operator with a combined 27 million mobile customers. Vodafone and Three are currently the UK’s third- and fourth-biggest operators respectively.

However, the deal is expected to attract considerable regulatory scrutiny. The UK’s telecoms regulator Ofcom has previously expressed concern that having only three mobile telephone networks in the country could harm consumers. And while Ofcom announced a relaxation of that position in 2022, there are still suggestions that the regulator may take a dim view of the deal.

Seeking to win over politicians, unions and the competition authorities, Vodafone and Hutchison said they would invest £11bn pounds to create “one of Europe’s most advanced standalone 5G networks”.

Regardless, the deal may be scrutinised under the National Security and Investment Act 2021, which allows ministers to block transactions linked to important national assets if they are deemed to harm national security. As Vodafone UK has a number of government contracts, the deal will likely face additional scrutiny.

“The merger is great for customers, great for the country and great for competition,” said Margherita Della Valle, group chief executive of Vodafone. “It’s transformative as it will create a best-in-class – indeed best in Europe – 5G network, offering customers a superior experience. As a country, the UK will benefit from the creation of a sustainable, strongly competitive third scaled operator – with a clear £11bn network investment plan – driving growth, employment and innovation. 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 centre for future technology.”

“Today’s announcement is a major milestone for CK Hutchison and for the UK,” said Canning Fok, group co-managing director of CK Hutchison. “Three UK and Vodafone UK currently lack the necessary scale on their own to earn their cost of capital. This has long been a challenge for Three UK’s ability to invest and compete. Together, we will have the scale needed to deliver a best-in-class 5G network for the UK, transforming mobile services for our customers and opening up new opportunities for businesses across the length and breadth of the UK. This will unlock significant value for CK Hutchison and its shareholders, realise material synergies, reduce net financial indebtedness and further strengthen its financial profile.”

“The combination of Vodafone UK and Three UK will bring more choice and better value to customers nationwide,” said Ahmed Essam, chief executive of Vodafone UK. “With scale to invest, we will create a best-in-class 5G network, supporting the Government’s 5G ambitions, drive digital transformation and create jobs. Through converged offers we will really challenge the two largest operators and, of course, we will continue to support the most vulnerable in society with our social tariffs and our commitment to help six million people cross the digital divide by 2025.”

“Today’s news marks a significant step in our efforts to create a business that will build the biggest and fastest 5G mobile network in the country,” said Robert Finnegan, chief executive of Three UK. “The combination of Three UK and Vodafone UK will bring the advantages of 5G to every business and household in the UK, enabling the UK to deliver its ambitions for digital and economic growth and fully supporting the UK Government’s objectives for a world-leading digital economy.”

Upon completion of the deal, the combined group will be led by Mr Essam. The finance chief of Hutchison’s Three UK, Darren Purkis, will take the same role in the new group.

Richard Summerfield