Vodafone targets Three as it fends off predators: Merger would create telecoms powerhouse amid City rumours FTSE giant faces takeover bid
- Vodafone held talks with CK Hutchison, owner of Three UK, about buying rival
- Rumours have been circulating that a private equity firm is eyeing Vodafone
- Vodafone has debts of €44billion (£37billion)
Vodafone has approached the Hong Kong owners of rival mobile phone company Three UK about a merger amid rumours the FTSE100-listed company itself could be a takeover target for a predator.
Vodafone held talks late last year with Asian conglomerate CK Hutchison (CKH), owner of Three UK, about buying its rival.
Separately, Vodafone has entered talks with rival Iliad to strike a deal to merge their businesses in Italy, which could make a €6billion (£5billion) telecoms powerhouse.
Talking the talk: Vodafone held talks late last year with Asian conglomerate CK Hutchison, owner of Three UK, about buying its rival
Either deal could be crucial in fending off disgruntled investors amid a wave of speculation that the £32billion telecoms giant may itself be vulnerable to a bid.
Rumours have been circulating the City that a private equity firm, such as CVC Capital Partners, or an American telecoms group is eyeing Vodafone.
Several telecoms operators have recently been pounced on by private equity firms, including a €33billion bid by US buyout giant KKR for Telecom Italia, Italy’s largest telecoms group, late last year.
Any takeover of Vodafone, which has debts of €44billion (£37billion), would likely require more than one firm to combine their spending power. The talks with Vodafone were first reported by Bloomberg.
Three’s attempted merger with O2 was blocked by the European Union, with backing from Ofcom, in 2016. But O2 was later allowed to merge with Liberty Global’s Virgin Media. Speculation had mounted last year that Three may itself attempt a takeover of a rival, most likely Vodafone.
Vodafone has around 20million customers while Three has 9.3million, which could make it a formidable player across mobile, fixed line and broadband operations.
City sources said Vodafone’s attempts to snap up Three UK had been paused – but discussions could be reignited if CKH can successfully convince regulators to approve a separate deal that would allow it to offload its UK mobile phone towers arm.
Last month, the Competition and Markets Watchdog provisionally blocked the sale of CKH’s £3.2billion UK towers arm, which is part of a £9billion sell-off of its 24,600 towers across Europe to Spain’s Cellnex. A final assessment is due on March 7.
Analysts said blocking the sale on grounds that CKH could have pursued a more competitive deal would be ‘baffling’ and that the company had a strong chance of a successful appeal.
One City banker said: ‘Vodafone buying Three is the most likely deal to happen in the UK telecoms market. If Three can convince regulators of the Cellnex deal, that could then reduce competition concerns around any Vodafone-Three combination as both have mobile phone towers.’ CKH is run by Victor Li, son of the billionaire Li Ka-Shing, Asia’s richest man.
Any combination of Vodafone and Three UK would be scrutinised by regulator Ofcom. It has previously resisted deals that would see the number of main telecom operators reduced from four to three.
However, telecoms executives across Europe have pushed regulators to allow consolidation to allow them to cut costs amid cut-throat competition. Vodafone chief Nick Read said in November that consolidation was needed in Europe, notably Italy, Spain and Portugal where ‘all players are suffering’.
Vodafone, Three UK and CVC all declined to comment.