Vodafone, CK Hutchison agree to merge UK businesses

Vodafone Group and CK Hutchison Group Telecom Holdings Limited, a wholly owned subsidiary of CK Hutchison Holdings Limited announced on Wednesday that they have entered into binding agreements in relation to a combination of their UK telecommunication businesses, respectively Vodafone UK and Three UK. Margherita Della Valle, Vodafone Group CEO, described the merger of Vodafone UK and Three UK as being “great for customers, great for the country and great for competition.” The Transaction is expected to result in substantial efficiencies totaling to more than GBP 700 million of annual cost and capex synergies by the fifth full year post-completion, with an implied NPV of over GBP 7 billion, Vodafone said in a statement, adding that in addition to cost and capex efficiencies, there is also an opportunity to realize material revenue synergies underscored by greater access to the consumer market, cross-selling opportunities from the Vodafone UK and Three UK mobile bases, and incremental opportunities from accelerated Enterprise 5G use-cases. MergeCo expects to incur approximately GBP 500 million of integration costs, most of which will be incurred in the first five years post-completion. No cash consideration to be paid, with Vodafone UK and Three UK contributed with differential debt amounts at completion of the Transaction to achieve MergeCo ownership of 51:49. Vodafone UK will be contributed with GBP 4.3 billion and Three UK with GBP 1.7 billion, subject to customary completion adjustments. The initial total debt in MergeCo is expected to be approximately GBP 6.0 billion, of which the GBP 1.7 billion amount owing to CKHGT will be refinanced. MergeCo will be consolidated in Vodafone’s financial statements and Vodafone has agreed to provide the initial debt financing to the joint venture. In connection with the Transaction, Morgan Stanley is acting as lead financial adviser to Vodafone, and Slaughter and May is acting as legal adviser to Vodafone. Robey Warshaw has also provided advice to Vodafone in connection with the Transaction.