Vodafone and CK Hutchison are close to agreeing a £15bn combination of their UK telecoms businesses that would create the country’s biggest mobile operator, with 28mn customers, three people close to the matter said.
The deal is expected to be unveiled this month following the appointment of insider Margherita Della Valle as Vodafone chief executive after months of uncertainty on who would run the UK telecoms group on a permanent basis, they said.
The deal is set to value the equity of the combined group at about £9bn, some of the people added. The new company would have roughly £6bn of debt, taking its enterprise value to about £15bn.
It would set the stage for a protracted political and competition fight as the deal would mark a historic consolidation of the UK market to three mobile operators — something that regulators have previously blocked.
The combination would also pave the way for Hong Kong-based CK Hutchison to exit the UK telecoms market, the people added. They cautioned, however, that no deal had been signed and that the situation could change.
The talks to combine Vodafone UK and CK Hutchison’s Three UK, first revealed by the Financial Times last May, have been going on for nearly a year as Vodafone has faced pressure from its investors to streamline its business by hiving off poorly performing units and pursuing deals in competitive markets, including Spain, Italy and the UK.
The transaction has been delayed by a number of issues, including the departure of Vodafone chief executive Nick Read at the end of last year, with both parties waiting for confirmation of a permanent replacement to finalise the deal. Vodafone confirmed last week the appointment of Della Valle, who was the company’s chief financial officer.
The companies said in a joint statement in October that the deal would have Vodafone own 51 per cent of the combined company and CK Hutchison the remainder.
The two companies are hoping to unlock huge cost savings in the first few years after closing by combining Vodafone UK with Three UK, which would pave the way for CK Hutchison to sell its 49 per cent stake to Vodafone.
People involved in the deal expect a lengthy regulatory approval process that might take more than a year.
The Competition and Markets Authority has been wary of mergers that could lead to greater concentration of market power and increased prices — which has become a particular concern after most UK mobile operators increased tariffs by about 14 per cent earlier this year. A similar deal between Three UK and O2 was blocked in 2016.
Both groups are also preparing to face political resistance on national security concerns. The UK government has started using its new powers under the National Security and Investment Act to review and sometimes unwind transactions by foreign parties relating to British assets deemed important to national security.
Last year, French billionaire Patrick Drahi’s 18 per cent stake in former telecoms monopoly BT was called in for a review by the business secretary. Chinese-owned Nexperia’s purchase of the chip group Newport Wafer Fab was blocked under the powers late last year.
The companies hope that Vodafone’s majority ownership of the merged business — which would become a subsidiary of Vodafone — would help assuage those concerns, according to people briefed on their thinking.
A host of foreign acquirers have built positions in Vodafone over the past year as the group has battled against an activist campaign, lost its chief executive and had its value fall by a fifth. United Arab Emirates telecoms group e& now has a 14.6 per cent stake, while Liberty Global owns 5 per cent and French telecoms tycoon Xavier Niel holds 2.5 per cent.
Meanwhile, Three UK has been in a negative loop of low investment and low returns for many years and has earned below its cost of capital since 2019.
Vodafone declined to comment. CK Hutchison did not immediately respond to a request for comment.
