Vodafone, Three agree to merge UK businesses

Vodafone will own 51% of the new entity while Hutchison Group will own 49%

Vodafone Group and CK Hutchison Group Telecom Holdings have entered into binding agreements in relation to a combination of their telecommunication businesses in the U.K., respectively Vodafone UK and Three UK, the companies said in a release.

The new entity will have 27 million customers, which would make it the largest mobile network in the U.K., according to published reports.

Under the terms of the deal, Vodafone will own 51% of the new entity while Hutchison Group will own 49%. The deal has to make it past regulators, however.

The new entity will reach 99% of the U.K. population with 5G Standalone (SA) networks. Also, the combined business will invest £11 billion ($13.95 billion) in the U.K.

The companies also noted that the new entity will create a “third operator with scale”, increasing competition with leading converged operators (BT and Virgin Media O2) and providing more choice for wholesale partnerships for the country’s MVNOs.

The transaction is expected to result in substantial efficiencies, including more than £700 million of annual cost and capex synergies by the fifth full year after the completion of the merger, Vodafone and Hutchison said.

The companies said that no cash will be paid upon completion of the merger and the businesses will contribute different debt amounts to achieve the ownership split. According to the terms of the deal, Vodafone will have the option to acquire CK Hutchison’s 49% stake in the future.

The new entity will have a six-person board, comprising three directors appointed by Vodafone and three directors appointed by CK Hutchison. Current Vodafone UK CEO Ahmed Essam will become the CEO of the new structure and current Three UK CFO Darren Purkis will take the role of CFO in the new entity.

The transaction is expected to close before the end of 2024, subject to regulatory and shareholder approvals.

The announcement has been awaited for some time. In October last year, Vodafone Group confirmed that it was in discussions with CK Hutchison Holdings in relation to a possible combination of Vodafone UK and Three. Previous reports noted that the transaction would be subject to an in-depth investigation by the Competition and Markets Authority.

Margherita Della Valle, Vodafone Group Chief Executive, said: “The merger is great for customers, great for the country and great for competition. 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 U.K. will benefit from the creation of a sustainable, strongly competitive third scaled operator – with a clear £11 billion network investment plan – driving growth, employment and innovation. For Vodafone, this transaction is a game changer in our home market.”

“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,” said Canning Fok, group co-managing director of CK Hutchison.