While the discussions with Three late last year have seemingly dissipated, negotiations with Iliad are seemingly ongoing

Vodafone Group has seemingly been quite active on the M&A front in recent months, with two separate stories coming to light this week suggesting they have sought to make market-shaking acquisitions in both the UK and Italy.

Bloomberg reports that Vodafone was exploring the possibility of purchasing Three UK with the latter’s parent company, CK Hutchison, late last year. 

In November last year, Vodafone’s Group CEO Nick Read said he was “firmly supportive of consolidation on the right terms”, suggesting that a merger with Three would make sense for the UK market.

Three’s CEO of UK and Ireland, Robert Finnegan, has similarly complained in the past that the UK mobile market is “dysfunctional”, suggesting that it is long overdue for consolidation. 

Three was notably blocked by UK and EU regulators from merging with O2 back in 2016, with the watchdogs fearing that the £10.25 million deal could negatively impact market competition. Since then, however, regulatory feeling towards mergers of this scale have softened, allowing the enormous £31 billion merger of O2 and Virgin Media last year.

A potential Vodafone–Three merger would build a mobile powerhouse in the UK, adding Three’s 9.3 million mobile subscribers to Vodafone’s roughly 20 million subscribers across its mobile, fixed line, and broadband offerings. Beyond this increase in scale, however, the potential synergies of the deal are not overly apparent; this is not the merger of a fixed operator with a mobile player to create a convergent operator, such as was the case with Virgin Media O2, for example.

Perhaps this is why, ultimately, it seems that any discussions have petered out, with no agreements having been announced. Bloomberg says that Vodafone is no longer “currently in active negotiations with CK Hutchison”. 

But while a potential merger with Three is no longer on the cards, discussions around combining Vodafone’s Italian unit with that of Iliad are reportedly ongoing.

If successful, the tie-up would create a major telecoms player within the market, with a dominant mobile market share of 36% and combined revenues of roughly €6 billion.

Iliad is also expected to launch its fixed broadband services tomorrow. 

CEO Read had previously been noted as saying that “all players are suffering” in highly competitive European markets, particularly in Italy, Spain, and Portugal, and that consolidation would be necessary to ease the burden on the operators. 

As is the case with €33 billion KKR takeover bid for TIM, it should be noted that the Italian government must ultimately be convinced of the merger’s merits, given their ‘golden powers’ to veto deals involving foreign companies taking control of critical national infrastructure.

Naturally, both of Vodafone’s potential mergers would have major implications for their respective telecoms markets, not least by reducing the number of mobile players from four to three. But the deals could also have a significant impact on Vodafone’s own financial position, with the company itself carrying around €44 billion in debt and rumours suggesting that it could itself become a target of M&A activity by private equity firms. 

In this regard, the bid from KKR to takeover Italian incumbent TIM has shown that private equity firms are increasingly willing to strike deals with world’s largest telecoms players, a sector that they had previously neglected due to its slim margins and low growth potential. 

The telecoms sector is becoming a hotbed of private equity investment activity for the first time in years and, it seems, no one is safe.

Indeed, in the UK, BT is facing its own fears of a potential takeover from billionaire Patrick Draghi, who increase his share in the company to 18% in December last year. 


Does the UK telecoms industry need consolidation to achieve success? Find out from the experts at this year’s live Connected Britain conference

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