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Vodafone UK and Three UK to combine to create UK’s largest network

In a move set to shake uk the UK telecommunications industry, both Vodafone UK and Three UK have reached an agreement to merge the UK businesses and create a new joint venture which will become the largest network in the UK with over 26m customers

Discussions started back in October 2022 when it was confirmed both operators were in talks to bring them together and to help compete with Virgin Media O2 (formed by Virgin Media and O2 joining together) and EE (Formed by T-Mobile and Orange joining together)

With an agreement in place, now comes the long waiting game where the deal has to be agreed and signed off by CMA which could take around 18 months and we will have to see what happens later on with regards to the new company and how it will operate.

— PRESS RELEASE —

Vodafone Group and CH Hutchison Group Telecom Holdings Ltd., owner of Three UK, have agreed to combine their UK businesses.

(London and Hong Kong, 14 June 2023) Vodafone Group Plc (“Vodafone”) and CK Hutchison Group Telecom Holdings Limited (“CKHGT”), a wholly owned subsidiary of CK Hutchison Holdings Limited (“CK Hutchison”), have entered into binding agreements in relation to a combination of their UK telecommunication businesses, respectively Vodafone UK (“Vodafone UK”) and Three UK (“Three UK”) (the “Transaction”).

Vodafone will own 51% of the combined business (“MergeCo”) and CKHGT 49%.

Margherita Della Valle, Vodafone Group Chief Executive, described the merger of Vodafone UK and Three UK as being “great for customers, great for the country and great for competition.”

Great for customers

  • From day one, millions of customers of Vodafone UK and Three UK will enjoy a better network experience with greater coverage and reliability at no extra cost, including through certain flexible, contract-free offers with no annual price increases, and social tariffs.
  • MergeCo will reach more than 99% of the UK population with our 5G standalone network, delivering to customers up to a six-fold increase in average data speeds by 2034.

Great for country

  • The combined business will invest £11bn in the UK over 10 years to create one of Europe’s most advanced standalone 5G networks, in full support of UK Government targets.
  • By having a best-in-class 5G network in place sooner, the merger will deliver up to £5bn a year in economic benefit by 2030, create jobs and support digital transformation of the UK’s businesses. Every school and hospital in the UK will have access to standalone 5G by 2030.

Great for competition

  • The merger will create a third operator with scale, levelling the competitive playing field, increasing competition to the UK’s two leading converged operators and will also provide more choice in wholesale partners for the UK’s already competitive MVNOs [Mobile Virtual Network Operators].
  • The combined business will offer fixed wireless access (mobile home broadband) to 82% of households by 2030, complementing MergeCo’s access to the UK’s biggest full-fibre footprint.

Value-creating transaction

  • No cash consideration to be paid, with the Vodafone UK and Three UK businesses contributed with differential debt amounts at completion to achieve MergeCo ownership of 51:49 between Vodafone and CKHGT.
  • Comprehensive joint governance framework in place between Vodafone and CKHGT, with Vodafone fully consolidating MergeCo. Vodafone and CKHGT having call and put options, respectively, which if exercised, would result in Vodafone acquiring CKHGT’s 49% shareholding.
  • The Transaction is expected to result in substantial efficiencies. These are expected to amount to more than £700m of annual cost and capex [capital expenditure] synergies by the fifth full year post-completion, with an implied NPV [Net Present Value] of more than £7bn.
  • Current Vodafone UK CEO Ahmed Essam will become MergeCo CEO, and current Three UK CFO Darren Purkis will take the role of MergeCo CFO.
  • The Transaction is expected to close before the end of 2024, subject to regulatory and shareholder approvals.

Margherita Della Valle, Vodafone Group Chief Executive, said:

“The merger is great for customers, great for the country and great for competition. It’s transformative as it will create a best-in-class – indeed best in Europe – 5G network, offering customers a superior experience.

“As a country, the UK will benefit from the creation of a sustainable, strongly competitive third scaled operator – with a clear £11bn network investment plan – driving growth, employment and innovation.

“For Vodafone, this transaction is a game changer in our home market. This is a vote of confidence in the UK and its ambitions to be a centre for future technology.”

Canning Fok, Group Co-Managing Director of CK Hutchison said:

“Today’s announcement is a major milestone for CK Hutchison and for the UK. Three UK and Vodafone UK currently lack the necessary scale on their own to earn their cost of capital. This has long been a challenge for Three UK’s ability to invest and compete.

“Together, we will have the scale needed to deliver a best-in-class 5G network for the UK, transforming mobile services for our customers and opening up new opportunities for businesses across the length and breadth of the UK.

“This will unlock significant value for CK Hutchison and its shareholders, realise material synergies, reduce net financial indebtedness and further strengthen its financial profile.”

Ahmed Essam, Vodafone UK Chief Executive, said:

“The combination of Vodafone UK and Three UK will bring more choice and better value to customers nationwide. With scale to invest, we will create a best-in-class 5G network, supporting the Government’s 5G ambitions, drive digital transformation and create jobs.

“Through converged offers we will really challenge the two largest operators and, of course, we will continue to support the most vulnerable in society with our social tariffs and our commitment to help six million people cross the digital divide by 2025.”

Robert Finnegan, CEO of Three UK, said:

“Today’s news marks a significant step in our efforts to create a business that will build the biggest and fastest 5G mobile network in the country.

“The combination of Three UK and Vodafone UK will bring the advantages of 5G to every business and household in the UK, enabling the UK to deliver its ambitions for digital and economic growth and fully supporting the UK Government’s objectives for a world-leading digital economy.”

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