Vodafone and Three UK close to a deal on megamerger

Vodafone UK and CK Hutchison’s Three UK could finalize their merger by the end of this week, Reuters reported, although both parties have stayed mum on the deal's status.

Talk of combining the two UK businesses started in May 2022, with Vodafone planning to take 51% and Hutchison 49% of the joint group. Those percentages would be decided through a differential leverage contribution at closing with no cash consideration to be paid.

CK Hutchison’s chief financial officer Frank John Sixt had previously said that getting the deal over the line was "extremely difficult," with the two entities unable to draw a conclusion to negotiations for over a year.

Vodafone and Three are the U.K.'s third and fourth largest operators, respectively, and a merger would create the biggest operator in the country with more than 27 million subscribers. That would overtake BT's EE and Telefonica’s VM O2.

Estimates for the combined group’s worth have gone as high as $18.6 billion.

There have been concerns that the deal will receive backlash from regulators who have consistently railed against the consolidation of network operators in the U.K. CCS Insight Analyst Kester Mann previously told Fierce, “Regulation would prove a significant hurdle to any deal. This is because it would instantly create a new market leader based on mobile customers and own a vast trove of 5G spectrum."

Analysts have also said that one big benefit of the merger would be the ability for the operators to pool resources such as sharing the radio access network (RAN). This would likely be viewed favorably by the U.K. government, which has been a strong proponent of open RAN.

Reuters reported that Hutchison's senior leadership met with British government officials in March looking for political support to fend off regulation scrutiny. Vodafone has publicly argued that without the merger the U.K. is at risk of losing out on 5G leadership. 

“By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the rollout of full 5G in the U.K. and expand broadband connectivity to rural communities and small businesses,” Vodafone stated.

The merged business would challenge EE and O2 and bring benefits through competitively priced access to a third “reliable, high quality, and secure” 5G network throughout the U.K., according to the carrier.

But it may be a long process for U.K. regulators to scrutinize the deal.

Shares in Vodafone jumped 3% on Wednesday after it was reported the deal will soon close.