Telecom giants Vodafone Group and Three are considering a merger of their UK divisions, City sources say
- Move could bring together the UK’s third and fourth largest mobile network operators
- A merger between the two was supposed to be announced in May but was delayed
According to City sources, telecoms giants Vodafone Group and Three are considering a merger of their UK divisions.
The merger would be a joint venture, with ownership split equally between the two groups, the sources said.
It would bring together the third and fourth largest mobile network operators in the UK behind BT’s EE and Virgin Media O2.
It’s good to talk: Vodafone had sales of £6.6 billion last year, while Three UK’s turnover was £2.5 billion
Hong Kong-based Three UK owner CK Hutchison would likely inject a lump sum of cash into the company, in part due to its smaller size, the sources said.
A merger between the two is understood to have been announced at Vodafone’s annual results in May, but the process has been delayed.
Vodafone posted £6.6 billion in revenue last year, while Three UK’s revenue was £2.5 billion.
Speculation that Vodafone is considering a partnership with Three UK has persisted since Europe’s biggest activist investor, Cevian Capital, emerged with a stake in the group earlier this year.
Cevian has called for mergers and acquisitions in key markets including the UK to boost Vodafone’s ailing share price.
Vodafone boss Nick Read said last year he was in favor of consolidation in the UK.
Hutchison has been keen to sell Three UK for some time as he has struggled to generate returns on the investment, City sources said. One said its owners could even close the store if no solution is found.
He added that telcos already had sizeable energy bills and the recent rise in energy costs has put further pressure on Three UK’s financial performance and is “feeling the pressure”. Industry observers are hoping the UK’s competition and markets regulator will follow the European Union’s lead in allowing telecoms mergers.
A merger of Vodafone and Three in the UK would mean that the number of dominant providers would be reduced from four to three.
However, City’s lawyers doubt the CMA would approve a deal and say their merger prospects have not changed since the attempted merger of O2 and Three UK, when they raised “serious” concerns about the impact with the European Commission expressed on British consumers.
Analysts at Assembly Research believe that prices for the CMA “would be a priority” when evaluating a merger or partnership between Three and Vodafone, “particularly given the cost-of-living crisis.”
Vodafone, Hutchison and Three UK were asked to comment.