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A pedestrian speaks on a mobile handset outside a 3 Italia mobile phone store, operated by CK Hutchison Holdings in Rome, Italy, on Monday, Aug. 10, 2015. Photo: Bloomberg

Vodafone confirms potential tie-up with Hutchison’s Three UK in telecoms consolidation

  • The deal would combine the two companies’ UK businesses, with Vodafone holding 51 per cent and CK Hutchison owning 49 per cent of the new unit, Vodafone said
  • There’s no certainty a deal will be reached, the company said

Vodafone Group said it’s in discussions with CK Hutchison Holdings about a combination with rival Three UK, the latest attempt to consolidate Britain’s telecoms market.

The deal would involve a combination of the two companies’ UK businesses, with Vodafone holding 51 per cent and CK Hutchison owning 49 per cent of the new unit, Vodafone said in a statement on Monday.

A combination of Vodafone and Three UK has been speculated for years, and Vodafone has teamed up with CK Hutchison in other markets including Australia. Vodafone initially expressed interest late last year in acquiring its smaller rival, Bloomberg previously reported.

Shares in Vodafone rose 1.6 per cent in London trading at 12:13pm and earlier gained as much as 3.6 per cent on Monday following the statement. The talks were reported earlier by Sky News.

“By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the roll-out of full 5G,” Vodafone said in the statement. “The merged business would challenge the two already consolidated players for all UK customers.”

Telecommunications companies are facing the expense of roll-outs for faster, denser 5G networks in the coming years and are looking for ways to make the builds more cost efficient. Still, regulators have resisted combinations that would reduce the number of major operators. In 2016, Three was blocked from buying Telefonica’s O2 business in the UK by the European Union with backing from British watchdog Ofcom.

Vodafone Chief Executive Officer Nick Read is trying to consolidate in key markets while facing pressure from shareholders including Europe’s largest activist fund, Cevian Capital. An investment vehicle backed by French billionaire Xavier Niel bought a 2.5 per cent stake in Vodafone last month.

Read has said he is pursuing deals in the UK, Spain, Italy and Portugal. However, rival Orange SA clinched the biggest likely deal in Spain, and Read turned down an offer for Vodafone Italy from Iliad.

The ownership stakes in the new company would be determined by different leverage contributions, and there will not be a cash consideration, Vodafone’s statement added.