Both Vodafone and Three declined to comment at the time, but it was noted that if the merger talk resulted in a tie up, it would likely to face significant regulatory scrutiny – not least because of the fact that Three UK is owned by China-based CK Hutchison Holdings.
Vodafone will end up owning 51 percent of the combined business, leaving CK Hutchison the minority stake of 49 percent.
Reports of a merger between the two came after Vodafone’s then chief executive Nick Read said in February 2022 the operator was pursuing mergers with rivals in multiple European markets, spurred on by more favourable signals from regulators who have realised the value of network investment during the Covid-19 pandemic.
After finally confirming the merger, both Vodafone and Three UK were keen to talk up the benefits of the deal, which still has to be approved by the UK’s increasingly powerful regulator, the CMA (which recently blocked Microsoft’s $69 billion acquisition of Activision Blizzard).
Both operators said the deal will benefit millions of customers of Vodafone UK and Three UK, allowing them to “enjoy a better network experience with greater coverage and reliability at no extra cost, including through certain flexible, contract-free offers with no annual price increases, and social tariffs.”
The merged entity will reach more than 99 percent of the UK population; and the combined business “will invest £11 billion in the UK over ten years to create one of Europe’s most advanced standalone 5G networks, in full support of UK Government targets.”
Both parties said the Transaction is expected to result in substantial efficiencies (aka job losses, store closures etc), and these are expected to amount to more than £700 million of annual cost and capex synergies by the fifth full year post-completion.
The current CEO of Vodafone UK, Ahmed Essam will become CEO of the combined entity, while current Three UK CFO Darren Purkis will take the role of CFO.
The transaction is expected to close before the end of 2024, subject to regulatory and shareholder approvals.
“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,” said Margherita Della Valle, Vodafone Group chief executive.
Vodafone CEO Margherita Della Valle. Image credit Vodafone
“As a country, the UK 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,” said Della Valle. “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,” said Fok. “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,” added Vodafone UK CEO Ahmed Essam.
“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,” said Essam. “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 6 million people cross the digital divide by 2025.”
UK consolidation
There has been some notable consolidation in the UK mobile market over the past decade, and it can be fair to say that Vodafone and Three had been lagging behind larger rivals EE and O2.
Both Vodafone and Three UK said this merger will “create a third operator with scale, levelling the competitive playing field, increasing competition to the UK’s two leading converged operators and will also provide more choice in wholesale partners for the UK’s already competitive MVNOs.”
That deal however was blocked by regulators in May 2016, after both the UK Competitions and Markets Authority (CMA) and Ofcom, as well as the EC opposed the transaction.
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