Vodafone Confirms Potential Tie-Up With Rival Three U.K.

A sign outside a Three mobile phone store, operated by CK Hutchison Holdings Ltd., in London, U.K.

(Bloomberg) --

Vodafone Group Plc said it's in discussions with CK Hutchison Holdings Ltd. about a combination with rival Three UK, the latest attempt to consolidate Britain's telecom market.

The deal would involve a combination of the two companies' UK businesses, with Vodafone holding 51% and CK Hutchison owning 49% of the new unit, Vodafone said in a statement on Monday. There's no certainty a deal will be reached, the company said.

A combination of Vodafone and Three UK has been speculated for years, and Vodafone has teamed up with CK Hutchison in other markets including Australia. Vodafone initially expressed interest late last year in acquiring its smaller rival, Bloomberg previously reported.

Shares in Vodafone rose 1.6% in London trading at 12:13 p.m. and earlier gained as much as 3.6% on Monday following the statement. The talks were reported earlier by Sky News.

“By combining our businesses, Vodafone UK and Three UK will gain the necessary scale to be able to accelerate the rollout of full 5G,” Vodafone said in the statement. “The merged business would challenge the two already consolidated players for all UK customers.”

Telecommunications companies are facing the expense of rollouts for faster, denser 5G networks in the coming years and are looking for ways to make the builds more cost efficient. Still, regulators have resisted combinations that would reduce the number of major operators. In 2016, Three was blocked from buying Telefonica SA's O2 business in the UK by the European Union with backing from British watchdog Ofcom.

Vodafone Chief Executive Officer Nick Read is trying to consolidate in key markets while facing pressure from shareholders including Europe's largest activist fund, Cevian Capital AB. An investment vehicle backed by French billionaire Xavier Niel bought a 2.5% stake in Vodafone last month.

Read More: Billionaire Niel Buys 2.5% of Vodafone to ‘Accelerate' Deals (3)

Read has said he is pursuing deals in the UK, Spain, Italy and Portugal. However, rival Orange SA clinched the biggest likely deal in Spain, and Read turned down an offer for Vodafone Italy from Iliad SA.

The ownership stakes in the new company would be determined by different leverage contributions, and there won't be a cash consideration, Vodafone's statement added.

(Updates with background throughout. An earlier version corrected the spelling of Vodafone in sixth paragraph)

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