Merger would create new leader in British mobile market
Vodafone in talks about creating a 51%-49% joint venture
Deal structured using debt, with no cash consideration
Vodafone shares rise 2.5%
LONDON, Oct 3 (Reuters) - Vodafone is in talks
with CK Hutchison about merging their businesses in
Britain to create a market leading mobile network that could
accelerate the roll-out of 5G services and expand broadband
Vodafone said on Monday it would own 51% and Hutchison 49%
under the deal being discussed, with the stakes achieved by
adjusting ownership of debt rather than exchanging any cash.
Combining Vodafone UK and Hutchison's Three, Britain's third
and fourth largest networks respectively, would create a
business with about 27 million mobile customers - more than
current leaders BT's EE and Virgin Media O2.
"By combining our businesses, Vodafone UK and Three UK will
gain the necessary scale to be able to accelerate the rollout of
full 5G in the UK and expand broadband connectivity to rural
communities and small businesses," Vodafone said in a statement.
The two companies hope to strike a deal by the end of the
year, according to an earlier Sky report.
Shares in Vodafone, which touched a two-year low earlier on
Monday, closed up 2.5% at 104 pence.
Vodafone Chief Executive Nick Read said in February the
company was pursuing mergers in multiple European markets to
improve returns where players barely cover the costs of the
capital required to invest in networks.
Regulators have previously opposed deals that reduce the
number of networks in major markets from four to three, but
there have been signals that position has changed since the
Hutchison attempted to buy Telefonica's O2 network in
Britain seven years ago but was blocked by regulators.
Telefonica went on to create a joint venture with Liberty
Global's Virgin Media, creating a fixed-line and mobile operator
to challenge former incumbent BT.
Vodafone noted in its statement that regulator Ofcom had
described Vodafone UK and Three UK as sub-scale operators, which
lacked the size to earn their cost of capital and therefore
could fall further behind the two market leaders.
Read has argued that the pandemic highlighted the importance
of fast and reliable networks, creating a "tailwind of
engagement" with governments.
Regulators, however, will be reluctant to approve a deal
that reduces competition during a cost-of-living crisis, with
customers already facing higher bills, analysts have said.
Vodafone said on Monday the merger could bring benefits
through "competitively priced access" to larger 5G network, for
example for mobile virtual network operators.
These players, which include Tesco Mobile and Sky, have
built a significant share of the British mobile market.
Read, under pressure from long-suffering investors to
improve returns at the pan-European operator, had named Britain
as one of four major markets that would benefit from
Vodafone missed out on a deal in Spain, where rivals Orange
and MasMovil are pursuing a merger to challenge Telefonica,
while it rejected a offer for its business in Italy from Xavier
Niel's Iliad earlier this year.
Niel acquired a 2.5% stake in Vodafone this month, bringing
another possible activist to its register in addition to Cevian
($1 = 0.8944 pounds)
(Reporting by Paul Sandle, Sachin Ravikumar and Muvija M;
Editing by William James, Mark Potter and David Gregorio)