- Vodafone confirms tie-up with Three UK
- Targeting completion by the end of 2024
- CMA set to examine the deal
The worst kept secret in the UK corporate world was confirmed today as a deal was announced which would see Three UK and Vodafone (VOD) combine to become the UK's largest mobile phone operator.
Shares in Vodafone were up 1.2% to 73.3p on the news but remain close to 12-month lows. In this article we will look to answer some of the key questions shareholders may be asking.
WHY IS VODAFONE DOING THE DEAL?
The company argues it lacks the scale to make the necessary investments in infrastructure and generate the necessary levels of return on capital.
WILL VODAFONE SHAREHOLDERS GET SHARES IN THREE?
No the deal is being struck between Three's UK operation and Vodafone. Three UK's current owner, Hong Kong conglomerate CK Hutchinson, will own 49% of the venture with Vodafone owning the remainder. Vodafone has an option to acquire 100% of the combined entity three years after the completion of any deal, subject to the enterprise value of said entity being at least £16.5 billion.
WHEN WILL THE DEAL COMPLETE?
Vodafone says it hopes to complete the deal by the end of 2024 but ultimately the timetable is out of its control as the transaction is set to be examined by the CMA (Competition and Markets Authority).
HOW LIKELY IS THE REGULATOR TO APPROVE THE DEAL?
In 2016 EU regulators blocked a takeover of O2 by the owner of Three on the grounds it would reduce customer choice and drive up prices. However, Vodafone argues the market has changed in the interim. Management placed big emphasis on investing £11 billion in 5G roll-out. The head of Vodafone's UK operation Ahmed Essam told a media briefing to discuss the merger the ‘case for the deal (to the regulator) stands on strong grounds’.
WHAT DOES IT MEAN FOR DIVIDENDS?
CEO Margherita Della Valle told the media briefing there would be no change to the company's dividend policy with the deal set to have a negligible impact on the company's cash flow. However, the costs of integration can be underestimated and after cutting its dividend in 2019 to tackle its debt burden, Vodafone's payout has stagnated.
