Vodafone and CK Hutchison have confirmed they are in talks about a potential merger between Vodafone and Three UK that would create Britain’s biggest mobile operator.
Vodafone and CK Hutchison, the parent company of Three UK, have long been considered potential candidates for a tie-up.
A merger of Vodafone and Three – the UK’s third- and fourth-biggest mobile operators respectively – would catapult the newly combined company above rivals EE and O2, with more than 27 million subscribers.
“Vodafone confirms that it is in discussions with CK Hutchison Holdings in relation to a possible combination of Vodafone UK and Three UK,” the company said.
“The envisaged transaction would involve both companies combining their UK businesses, with Vodafone owning 51% and our partner CK Hutchison owning 49% of the combined business.”
Hong Kong-based Hutchison has been exploring a sale, having failed to grow Three UK, which launched more than two decades ago, to the scale of the three biggest players, EE, O2 and Vodafone.
Mobile carriers are always aiming for more scale, critical to the economics of the capital-intensive, infrastructure-intensive carrier business model, but these days all the more important because of the data and customer ownership that this scale brings carriers, and because of there are fewer routes for carriers monetizing users.
Vodafone said a deal to create a larger telecoms group was necessary, given the huge costs of rolling out and maintaining new 5G networks.
“The conditions to ensure thriving competition in the market need to be nurtured, otherwise the UK is at risk of losing the opportunity to be a 5G leader,” Vodafone said.
“As Ofcom has identified, some operators in the UK – Vodafone UK and Three UK – lack the necessary scale to earn their cost of capital.
“By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the rollout of full 5G in the UK and expand broadband connectivity to rural communities and small businesses.”
Vodafone is traded publicly in the U.K., and its market cap is currently around £28.7 billion, or $32.2 billion at today’s rates. CK Hutchison has a market cap of about $21 billion (but that also controls other assets).
The companies said there would be no cash component involved in the deal – Vodafone has twice the customer base of Three – with the relative ownership structure set to be achieved through a “differential leverage contribution” involving debt.
Vodafone has about 18 million mobile subscribers compared with Three’s 9.3 million.
The merger would be subject to an in-depth investigation by the Competition and Markets Authority. However, Vodafone pointed out that BT bought the mobile operator EE in 2015 while Virgin Media and O2 merged in 2020.
Vodafone said that it and Three would be making more statements as and when talks progress
