Vodafone Group Plc (NASDAQ: VOD), acknowledging recent press speculation, confirms that it is in discussions with CK Hutchison Holdings Limited in relation to a possible combination of their respective mobile network operators, Vodafone UK and Three UK. The envisaged transaction would involve both companies combining their respective U.K. MNOs, with Vodafone owning 51 percent and its partner CK Hutchison owning 49 percent of the combined business. The relative ownership would be achieved through a differential leverage contribution at closing, and no cash consideration will be paid.
The company supports the U.K. government view that 5G can be transformational for the economy and society, and is critical to the U.K. becoming more competitive in an increasingly digital world. Vodafone points out that the conditions to ensure viable competition in the market need to be nurtured, otherwise the U.K. is at risk of losing the opportunity to be a 5G leader.
As telecom regulator Ofcom has identified, some operators in the U.K., notably Vodafone UK and Three UK, lack the necessary scale to earn their cost of capital. The U.K. currently has four mobile network operators – EE, O2, Vodafone UK and Three UK. By combining their respective businesses, Vodafone expects that Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the rollout of full 5G in the U.K. and expand broadband connectivity to rural communities and small businesses.
The merged business would challenge the two already consolidated players – EE and O2 – for all U.K. customers and bring benefits through competitively priced access to a third reliable, high quality, and secure 5G network throughout the U.K.
Vodafone cautioned that there can be no certainty that any transaction between the two companies will ultimately be agreed.
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