UPDATE The long-speculated merger of Vodafone (NASDAQ: VOD) and Three UK, the British operating unit of Hong Kong-based CK Hutchison, may finally come to fruition. Yesterday, the companies announced that a merger agreement has been reached. The companies will combine their respective operations in the U.K. Vodafone will own a 51 percent share of the merged company, temporarily referred to as MergeCo, with CK Hutchison holding the 49 percent balance.
MergeCo will reach more than 99 percent of the U.K. population with its 5G standalone network and multi-gigabit data speeds by 2034. The combined business will invest roughly $14 billion in the U.K. over 10 years to create what it believes will be one of Europe’s most advanced standalone 5G networks and one that supports the U.K. Government’s socioeconomic targets.
Similar to the merger of T-Mobile and Sprint that created a strong third mobile network operator in the U.S., MergeCo will create a third national MNO to compete with the UK’s two leading converged operators, EE, part of the BT Group, and O2, jointly owned by Telefónica and Liberty Global. MergeCo is expected to provide more choice of wholesale partners in an already competitive MVNO environment. Furthermore, MergeCo plans to offer fixed wireless access home broadband to 82 percent of households by 2030.
“The merger is great for customers, great for the country and great for competition,” says Margherita Della Valle, Vodafone Group Chief Executive. “For Vodafone, this transaction is a game changer in our home market. This is a vote of confidence in the U.K. and its ambitions to be a center for future technology.”
“Today’s announcement is a major milestone for CK Hutchison and for the U.K.,” adds 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 U.K.”
With no cash consideration, Vodafone UK and Three UK are contributing differential debt amounts at completion to achieve MergeCo ownership of 51:49 between Vodafone and CK Hutchison.
The transaction is expected to achieve substantial efficiencies, driving more than $885 million of annual cost and capex synergies by the fifth full year post-completion, with an implied net present value of over $9 billion.
Current Vodafone UK CEO Ahmed Essam will become MergeCo CEO, and current Three UK CFO Darren Purkis will take the role of MergeCo CFO.
The transaction is expected to close before the end of 2024, subject to regulatory and shareholder approvals.
By John Celentano, Inside Towers Business Editor
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