After several months of speculation and discussions, Vodafone and CK Hutchison made the long-awaited announcement on Wednesday, unveiling the details of the merger. The merger aims to enhance competition and stimulate investment with a commitment of $14 billion in the UK.
According to the agreement, Vodafone will hold a 51 percent stake in the combined group, while Hutchison will own the remaining 49 percent. The new entity will be led by Ahmed Essam, the current Vodafone UK boss. Darren Purkis, the finance chief of Three UK, will assume the same role in the merged company.
With approximately 27 million customers, the combined operator will surpass BT’s EE and VM O2, which is jointly owned by Telefonica and Liberty Global, to become the largest mobile operator in the UK. Additionally, Vodafone has been granted options that allow it to acquire Hutchison’s 49 percent stake in the future.
Dan Ridsdale, Director of TMT, Edison Group, commented:
“The deal structure comes as no surprise, with the 51/49 Vodafone/Three split having been widely commented on ahead of the deal, although the potential magnitude capex and cost synergies of over £7bn Net Present Value may surprise some on the upside.
The deal is obviously subject to approvals from shareholders and regulators and Vodafone’s statement gives a clear indication that it is the latter they are more concerned about. The release reads like an overt pitch to convince a broader set of interest groups (e.g. CMA, Ofcom, press etc) leading with the benefits for customers, country and competition, before looking at deal synergies.
Management will have a good level of insight into the opinions of key investors regarding the deal, whereas regulators play their cards much closer to their chest.
For the CMA, the equation is likely to come down to how much they take into account the consumer benefits from the promised acceleration to the rollout of 5G, gained through economies of scale versus the competitive risks from concentrating market power. They will almost certainly consult Ofcom as part of the process who have already highlighted that Vodafone and Three’s poor return on capital under the current market structure presented a risk to future investment in the UK’s networks.”
To garner support and address concerns from various stakeholders, the two companies have pledged to invest £11 billion ($14 billion) in the UK over a span of ten years. The duo aims to create one of Europe’s most advanced standalone 5G networks, which would position the UK as a leader in next-generation mobile technology.
Canning Fok, co-managing director of CK Hutchison, emphasised the scale required to deliver a top-notch 5G network in the UK.
Fok stated that Three UK and Vodafone UK individually lacked the necessary scale to achieve their cost of capital. By combining forces, the merged entity will possess the resources and capabilities needed to provide exceptional 5G services, transforming the mobile landscape in the UK.
Following the announcement, Vodafone’s shares experienced a notable boost of 3.6 percent, recovering from a recent dip to a 25-year low of 71 pence. The market responded positively to the merger, indicating confidence in the potential benefits and opportunities it presents for the two companies and the UK mobile industry as a whole.
As the merger progresses, the attention will shift to regulatory reviews, which will determine the feasibility and implications of the deal.
Ernest Doku, Telecoms Expert at Uswitch, said:
“There are potential pros and cons for consumers with any merger like this. At Uswitch, we’re all about providing customers with greater choice, however with consolidation in the UK market – from four Mobile Network Operators (MNOs) down to three – there’s always the risk of reduced competition and subsequent increased prices.
At a time when millions across the UK are facing the highest mid-contract prices we’ve ever seen, consumers need assurances that this merger will not result in even higher household bills. The pledge of a significant investment in 5G over the next decade is some solace that they will be building for a better future of connectivity, so long as it is adhered to. What we don’t want to see is customers footing the bill with further increases to pricing.
They should also commit to ensuring smaller virtual networks (MVNOs) who rely on Three and Vodafone’s infrastructure can continue to offer competitive value and service.
Also, while the cost-saving benefits for Vodafone and Hutchinson are clear, the merged company needs to ensure it delivers an upside for consumers – specifically, its promise of innovation and an advanced standalone 5G network.”
If approved, the combined entity will significantly reshape the UK’s mobile landscape, offering enhanced competition and driving advancements in 5G technology to the benefit of consumers and businesses alike.
Explore other upcoming enterprise technology events and webinars powered by TechForge here.