Vodafone and the owner of Three UK have reportedly stepped up talks about a deal to combine their British operations, paving the way for the creation of the mobile phone industry’s biggest player by customer numbers.
According to Sky News, Vodafone and CK Hutchison are hopeful of reaching a deal by the end of the year to establish a joint venture or other form of business combination.
Sky cited people close to the talks as saying the discussions had intensified in recent weeks after a period in which they were thought to have stalled.
Hong Kong-based CK Hutchison has been exploring a sale of Three UK for some time, having concluded that the operation – which has nine million customers – was sub-scale in a sector that carries huge capital investment requirements for developing network infrastructure.
It was understood to have decided that a deal with Vodafone represents the best opportunity to help it play a role in market consolidation, with Vodafone chief executive Nick Read under pressure from shareholders to revive the company’s flagging share price.
Insiders told Sky on Monday that talks between the two companies were now at a “relatively advanced” stage, though several significant hurdles remained outstanding and there was no certainty that a deal would ultimately be reached.
The most imposing of these is likely to be the regulatory scrutiny that a deal would face both from industry regulator Ofcom and the Competition and Markets Authority, Sky said.
Sources said it was “almost certain” that the CMA would want to launch an in-depth merger inquiry.
Sky said concerns are also likely to be raised by rivals about the volume of spectrum owned by the combined group, with one analyst saying it would control 46% of all UK mobile spectrum.
A deal would create a market-leading business, with roughly 27m customer connections, Sky said. That would be bigger than Virgin Media O2, and EE, which is owned by BT Group.
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.
