Vodafone Group Plc and CK Hutchison Group Telecom Holdings Limited (CKHGT), a wholly-owned subsidiary of Hong Kong’s CK Hutchison Holdings Limited, have signed formal agreements to merge their U.K. telecommunication businesses.
CKGHT operates as Three in the U.K. Vodafone, which uses its own brand, will own 51% of the combined business and CKHGT 49%.
If the merger is approved, the combined entity, which will be valued at some £15 billion ($19 billion), will become one of Europe’s largest 5G players and the U.K.’s largest mobile operator with 27 million customers, overtaking BT’s EE and Telefonica and Liberty Global’s Virgin Media O2. Vodafone will have the option to acquire CKHGT’s stake in the future.
The move is significant in a market where video viewing on mobile phones is on the rise with TikTok, YouTube and Netflix among the most popular apps. The combined business will also offer fixed wireless access (mobile home broadband) to 82% of households by 2030, making it a major infrastructure player in the U.K.’s burgeoning streaming market.
The merger, which has been in discussions for several months, is not a done deal, however. It needs the approval of U.K.’s influential Competition and Markets Authority (CMA), which in recent months has scuppered Facebook-owner Meta’s acquisition of Giphy and blocked Microsoft’s proposed $68.7 billion deal to buy video games giant Activision Blizzard.
In what is possibly an advance conciliatory nod to the CMA, the the owners have said that the merged entity will invest £11 billion ($13.9 billion) in the U.K. over 10 years to create one of Europe’s most advanced standalone 5G networks, in full support of U.K. government targets. The merger will deliver up to £5 billion per year in economic benefit by 2030, create jobs and support digital transformation of the U.K.’s businesses, Vodafone and CKHGT pledge, adding that every school and hospital in the U.K. will have access to standalone 5G by 2030.
Addressing the competition issue head on, Vodafone and CKHGT say that “the merger will create a third operator with scale, levelling the competitive playing field, increasing competition for the U.K.’s two leading converged operators and will also provide more choice in wholesale partners for the U.K.’s already competitive MVNOs [Mobile Virtual Network Operators].”
The merged entity will have a six-person board, comprising three directors appointed by Vodafone and three directors from CK Hutchison. Employees of both businesses will be afforded equal opportunities for relevant positions in the combined business. The transaction is expected to result in substantial efficiencies amounting to more than £700 million of annual cost and capital expenditure synergies by the fifth full year post-completion.
The current Vodafone U.K. CEO Ahmed Essam will become the new CEO, and current Three U.K. CFO Darren Purkis will take the role of CFO.
The transaction is expected to close before the end of 2024, subject to regulatory and shareholder approvals.
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