Yahoo Finance Vodafone merger ‘extremely difficult’ amid national security fears
Vodafone’s talks to merge its UK business with that of Chinese-owned rival Three face an “extremely difficult” conclusion amid calls for any deal to be investigated on national security grounds.
Three’s owner CK Hutchison, controlled by 94-year-old Hong Kong billionaire Li Ka-Shing, and FTSE-listed Vodafone hope to push through a merger of their UK mobile units in a deal valuing the combined business at about £15bn.
While City sources have speculated that the tie-up is imminent, Frank John Sixt, finance chief at CK Hutchison, warned the talks faced late hurdles.
Mr Sixt said: “It is probable as has been speculated that we will reach an understanding with our friends at Vodafone.
“Although I would say they [Vodafone] are extremely difficult to draw a conclusion with on the one hand, but on the other hand they are, in the end, very good partners.
“So the first part makes me a little bit more sceptical, but the second part makes me a little bit more optimistic.”
A spokesman for Three UK would not comment on what the difficulties holding up the talks might be. Sources close to the parties insisted they believed discussions had been “very positive” and were progressing to their conclusion.
Vodafone’s potential merger of its UK mobile arm with Three UK has been fiercely opposed by China-sceptic MPs and by unions amid concerns around national security and jobs.
The merger between Britain’s third and fourth-largest mobile operators would create a business with a combined 27 million customers.
The deal is likely to prove a key litmus test of Britain’s tightened up takeover regime. The tie-up is expected to create a joint venture between Vodafone and Three, where the Hong Kong-owned company will hold a 49pc stake that could reduce over time.
The talks between the companies began last May and have continued for nearly a year.
However, union bosses at Unite have written to Margherita Della Valle, Vodafone’s chief executive, warning of “profound national security questions” over the potential merger and have been lobbying MPs and officials over the deal.
“A tie-up between Vodafone and Three would give the CK group a far more prominent and powerful place at the very heart of the UK’s telecoms infrastructure,” the letter, first revealed by The Telegraph last month, said.
“We therefore believe that such links prompt significant national security questions regarding any proposed merger.”
Sir Ian Duncan Smith, the former Conservative Party leader, has urged officials to block any transaction.
Further complications could arise from any competition concerns over the mega merger, although industry executives believe it stands a good chance of being approved to reduce the number of players in the UK’s mobile market.
Defenders of the proposed tie-up argue CK Hutchison has had a presence in the UK for 20 years and any agreement would be subject to the usual scrutiny from security officials.
Vodafone and Three believe the combination would give them the firepower to invest sustainably.
Mr Sixt’s remarks came as a British government minister visited Hong Kong for the first time in five years in a bid to boost business ties.
Lord Dominic Johnson, the Investment Minister, held talks with Hong Kong leaders and met with Victor Li, chairman of CK Hutchison, and senior executive Canning Fok to discuss their investment plans in the UK.
A Business Department spokesman did not comment on whether the merger talks with Vodafone were discussed.
Sam Goodwin, policy director at human rights group Hong Kong Watch, said: “I don't see how this planned merger which would allow a Hong Kong-based company joint ownership of the largest UK mobile provider doesn’t trigger the National Security and Investment Act.”
Publishing its results for the first three months of 2023 on Tuesday, Three said it had grown its UK revenues by 5pc to £610m, while it now had more than 10.3 million customers.
Robert Finnegan, Three’s chief executive, warned however that the company’s returns remained “below the cost of capital”. He added: “Market structural change is needed.”
