Vodafone, Hutchison unveil $19 billion UK mobile merger

Vodafone (LON:VOD) and CK Hutchison finally unveiled the 15 billion pound ($19 billion) merger of their British mobile operations on Wednesday, saying the creation of a new market leader would drive competition and investment in the country.

The long-awaited deal, after the two companies publicly revealed they were in talks in October, will now trigger prolonged scrutiny by the anti-trust regulator into whether an operator with 27 million customers can damage competition.

Seeking to win over politicians, unions and the competition authorities, the two groups said they would invest 11 billion pounds in Britain over 10 years to create what they described as “one of Europe’s most advanced standalone 5G networks”.

“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,” CK Hutchison Co-Managing Director Canning Fok said.

Under the terms, Vodafone will own 51% and Hutchison 49% of the combined group, which will be led by current Vodafone UK boss Ahmed Essam. The finance chief of Hutchison’s Three UK, Darren Purkis, will take the same role in the new group.

The combined operator will have about 27 million customers, overtaking BT (LON:BT)’s EE and VM O2, jointly owned by Telefonica (BME:TEF) and Liberty Global (NASDAQ:LBTYA).

Vodafone, which is currently Britain’s third-biggest mobile operator, and fourth-placed Hutchison will have options which would allow Vodafone to acquire the Hong Kong-based conglomerate’s 49% stake in the future.

PROLONGED SCRUTINY

The deal will face intense scrutiny from regulators who have previously opposed deals that reduce the number of networks in major markets from four to three.

Vodafone’s Essam said the companies would present the deal to Britain’s Competition and Markets Authority (CMA) in the coming weeks. “We believe that this case stands on very strong grounds,” he told reporters. “We’re very confident on our case.”

Hutchison’s Three UK boss Robert Finnegan pointed out that the planned investment was substantially higher than rivals, and while a rejection by the CMA would not lead to Hutchison exiting Britain, it would have to reduce investment.

However the deal will still face many hurdles.

Unite, one of Britain’s biggest trade unions, said it would lead to higher mobile phone bills and job cuts, and questioned whether a company with close ties to China should have such a prominent place in UK telecoms infrastructure.

“The government must step in and stop this reckless merger and Unite is building a cross-party coalition to demand they do so,” said Gail Cartmail, executive head of operations for Unite.

Vodafone said customers of both companies would enjoy better network coverage within the first 12 months of the deal closing, expected before the end of 2024, subject to regulatory and shareholder approval.

It said customers would not face extra costs, and there would be flexible, contract-free offers with no annual price increases, plus social tariffs.

The two groups said they would be able to save more than 700 million pounds a year by combining networks by the fifth year after completing the deal.

Shares in Vodafone, which fell to a 25-year low of 71 pence on Tuesday, rose 3.6% after the deal was announced.

($1 = 0.7909 pounds)