Talks paused over UK competition authorities’ concern about Three UK selling tower estate
There are reports that Vodafone approached the Hong Kong-based CK Hutchison, owner of Three UK, late last year about acquiring its rival. Vodafone UK has about 20 million customers and Three UK about 9.3 million.
Vodafone Italy is also reportedly holding merger talks with Iliad Group to merge with Free Italy to better compete in the fragmented Italian market.
This is Money suggests that the success of either set of negotiations could be crucial to Vodafone Group fending off a reported hostile takeover bid from a private equity concern.
There was also a suggestion that Three UK’s parent company might attempt to acquire Vodafone UK last year.
Debt mountains
A Betaville uncooked report last November suggested that one of Europe’s biggest private equity companies, CVC Capital, was assessing the possible acquisition of Vodafone, if not necessarily outright.
Like most other large European telco groups, Vodafone is struggling with a mountain of debt – €44 billion in its case – and was forced to suspend dividends in 2019 and has had a disastrous time in the Indian market, losing billions of pounds.
In the last few days, the Indian government took a share in its equity in return for waiving payments to the Indian authorities.
Four to three ain’t bad
Previously regulators have been chary of allowing countries going from four to three mobile operators, but the UK is no longer part of the EU, which famously blocked the proposed merger of O2 UK and Three UK in 2016.
That decision by the European Commission was later lambasted and annulled by the European Court on the grounds, to paraphrase, that it had been based on a belief system rather than evidence that the merger would do harm in the market.
John Strand, founder of Strand Consult, has long argued that the Commission’s regulatory focus is wrong-headed and recently published an evidence-based report on the implications of the move from four to three mobile players in any given market, which he says is poorly understood by all parties.
However, the merger between cable co Virgin Media and O2 UK was allowed to go ahead last year on the grounds it would be better placed to give BT a run for its money with a fixed and mobile business.
Ofcom also has had a new CEO since last March and it is clear to all that communications infrastructure is of critical economic and social importance, and that the operators’ current situations are unsustainable.
Vodafone Group’s CEO, Nick Read, has often commented that consolidation in Europe is both inevitable and desirable.
Trouble with towers
There is speculation that Vodafone’s pursuit of Three has been paused until the future of Three UK’s tower estate is known.
CK Hutchison is keen to sell its UK tower estate to Spain’s Cellnex for £3.2 billion as part of a larger deal, selling its 24,600 European tower estate to the Spanish firm for a total of £9 billion.
However, the UK’s Competition and Markets authority has prevented the British part of the sale until it publishes its final decision on 7 March.
Vodafone also has its own towerco, Vantage Towers, which had its initial public offering less than a year ago in Frankfurt. That could be a reassuring factor for the UK competition authorities if the deal goes ahead.