Vodafone confirmed on Monday that it is in talks with Hong Kong-based CK Hutchison about a possible merger of its UK business with Three UK.
Responding to a Sky News report, Vodafone said the potential deal would involve both companies combining their UK businesses, with Vodafone owning 51% and CK Hutchison owning the remainder of the combined business.
The relative ownership would be achieved through a differential leverage contribution at closing, and no cash consideration will be paid, Vodafone said.
“The UK Government rightly sees 5G as transformational for the economy and society and critical to the UK becoming more competitive in an increasingly digital world,” the company said.
“The conditions to ensure thriving competition in the market need to be nurtured, otherwise the UK is at risk of losing the opportunity to be a 5G leader. As Ofcom has identified, some operators in the UK – Vodafone UK and Three UK – lack the necessary scale to earn their cost of capital.”
It said that by combining the 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.
“The merged business would challenge the two already consolidated players for all UK customers and bring benefits through competitively priced access to a third reliable, high quality, and secure 5G network throughout the UK,” it said.
Vodafone added that there can be no certainty that any transaction between the two companies will ultimately be agreed.
Sources told Sky that CK Hutchison has indicated that it was seeking a valuation for Three UK of roughly £6bn, though that predated the sale of some mobile towers assets, so it was unclear if the figure remained current.
One industry analyst speculated that the value of the combined Vodafone-Three UK business could be in the region of £12bn to £15bn, Sky said.
