Proactive Investors - Vodafone Group PLC (LON:VOD)’s long-running negotiations with Three UK owner CK Hutchinson to combine their UK-based telecoms businesses have advanced to the next stages, according to a Financial Times report.
Expected to be announced this month, the combination of the two groups would create a £15bn entity comprising £9bn in equity and £6bn in debt, with Vodafone becoming the 51% majority owner.
Hong Kong-based conglomerate CK Hutchinson is reportedly hoping to exit the UK telecoms market following the combination by selling its 49% stake to Vodafone.
Vodafone is under increasing pressure to turn its ship around after years of poor shareholder returns, with acquisitions of this calibre considered a viable way of fixing its growth conundrum.
Robert Grindle head of European TMT research at Deutsche Bank (ETR:DBKGn) predicted that a sustained M&A strategy under recently elected chief executive Margerita Della Valle “would do much to reverse negative sentiment around Vodafone shares and perceptions that the group is not moving quickly enough to increase shareholder value”.
The deal could add up to 15% extra free cash flow after five years, said Grindle.
Activists have also been pushing Vodafone to dispose of certain assets in order to tackle the group’s massive £40bn debt pile.
Competition watchdog the CMA is likely to scrutinise the deal under the National Security and Investment Act, introduced in 2021 to identify and manage national security risks of international mergers and acquisitions.
Markets shrugged off the news today, with shares in the FTSE 100 constituent trading 0.9% lower to 95.37p.