Vodafone and Three agree mega-merger to create Britain's biggest mobile operator - and vow to invest £11bn

  • The combined group has an estimated value of £15bn 
  • Vodafone would take a 51% stake - Three a 49% stake 
  • Requires regulatory approval  which one expert says could be a 'tall order'

By MIKE SHEEN FOR THIS IS MONEY

Updated:

Vodafone and long-time rival Three have finally agreed to a merger which would create Britain's biggest mobile operator.

The combined group, whose value has been estimated at around £15billion - a figure higher than BT - will be led by Vodafone UK chief executive Ahmed Essam with Three UK's Darren Purkis as finance chief.

The deal, which would see no cash change hands, will hand Vodafone at 51 per cent stake while Three owner CK Hutchison Group will take a 49 per cent stake - if approved by regulators.

Vodafone and CK Hutchison, which had been in talks since at least October, have pledged to invest £11billion in the UK over ten years 'to create one of Europe's most advanced standalone 5G networks'.

Mega merger: The merger would see Vodafone take a 51% stake and Three 49%

Mega merger: The merger would see Vodafone take a 51% stake and Three 49%

The new company, branding of which is yet to be revealed, said it would reach more than 99 per cent of the UK population with its 5G offering, delivering to customers 'up to a six-fold increase' in average data speeds by 2034.

It would serve around 28million customers, surpassing EE and Virgin Media O2.

Analysts have said a merger could transform Three, which has been struggling to compete against its larger rivals and failed to make headway from its position as Britain's fourth-largest mobile operator.

The companies claim the deal will give 'millions' of customers 'a better network experience…at no extra cost'.

It will offer fixed wireless access, or mobile home broadband, to 82 per cent of households by 2030.

The firms say the combined 5G network will deliver 'up to' £5billion per year in economic benefit to the UK by 2030, creating jobs and supporting the country's digital transformation.

For the businesses themselves the transaction is expected to amount to more than £700million of annual cost and capital expenditure synergies by the fifth full year post-completion at the end of 2024.

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.

'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, added: '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.'

However, there may be concerns from the regulator about weakened competition.

Victoria Scholar, of Interactive Investor, said: 'Shares in Vodafone have jumped following the announcement reflecting the excitement among investors about the benefits of this tie-up after longstanding talks since last year. 

'This is likely to be Della Valle’s biggest accomplishment in the top job so far if the deal crosses the line.

'But first the merger needs to secure regulatory approval, which could be a tall order given the likely concerns over diminished competition and consumer choice. 

'In 2016, the UK and European regulators blocked a takeover of O2 by Three, citing concerns about higher prices.'

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