2023-06-14 07:53:47 ET
Vodafone ( NASDAQ: VOD ) and CK Hutchison ( OTCPK:CKHUY ) ( OTCPK:CKHUF ) are merging their U.K. telecommunication businesses, Vodafone UK and Three UK, to create the country's largest mobile operator.
Vodafone will own 51% of the combined business and CK Hutchison Group Telecom (CKHGT), a unit of CK Hutchison, will own the remaining 49%.
The combined business will invest £11B in the U.K. over 10 years to create one of Europe’s most advanced standalone 5G networks, the companies added.
By having a 5G network in place sooner, the merger will deliver up to £5B per year in economic benefit by 2030, create jobs and support digital transformation of U.K.'s businesses. Every school and hospital in the UK will have access to standalone 5G by 2030, according to the companies.
"Today’s news marks a significant step in our efforts to create a business that will build the biggest and fastest 5G mobile network in the country," said Three UK's CEO Robert Finnegan.
The transaction is expected to result in more than £700M of annual cost and capex saving by the fifth full year post-completion, with an implied NPV of over £7B.
The combined company's CEO will be current Vodafone UK CEO Ahmed Essam, while current Three UK CFO Darren Purkis will serve as CFO.
The companies said that no cash consideration is to be paid, with Vodafone UK and Three UK contributed with differential debt amounts at completion of the Transaction to achieve ownership of 51:49. Vodafone UK will be contributed with £4.3B and Three UK with £1.7B, subject to completion adjustments, according to the companies.
The initial total debt in the combined company is expected to be ~£6B, of which the £1.7B amount owing to CKHGT will be refinanced, the companies noted.
The merger is worth ~£15B (~$19B), according to a report from Reuters.
"Today’s announcement is a major milestone for CK Hutchison and for the UK. Three UK and Vodafone UK currently lack the necessary scale on their own to earn their cost of capital. This has long been a challenge for Three UK’s ability to invest and compete," said Canning Fok, Group co-managing director of CK Hutchison.
The transaction is expected to close before the end of 2024, subject to regulatory and shareholder approvals.
The companies have agreed a put/call framework in order to enable Vodafone to acquire 100% of MergeCo after three years following completion of the transaction. Vodafone may acquire CKHGT’s 49.0% stake in MergeCo and CKHGT may sell its 49.0% stake in MergeCo to Vodafone, the companies noted.
VOD +2.63% to $9.38 premarket June 14
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Vodafone, CK Hutchison to merge UK mobile businesses