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Vodafone Group plc (LON:VOD) has agreed terms with Three UK owner, Hutchinson Group, to merge their UK telecoms businesses. The combination of Vodafone UK and Three UK will create a new entity, with Vodafone retaining a majority 51% share.
This is a non-cash deal, expected to generate more than £700m of annual cost savings by the fifth full-year post-completion. In the first five years, integration costs are expected in the region of £500m.
The shares were up 2.6% shortly after the announcement.
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Vodafone – Three Merger
“The merger of Vodafone's UK arm with Three is a deal that'll see the third and fourth biggest players create a new dominant force in the market. Negotiations haven't been easy, and the process has felt like a fairy tale at times, but the new joint entity will provide both parties with a renewed sense of vigor in a market that's tricky to excel in.
Under the stewardship of a new CEO, Vodafone's looking for ways to transform the business into something more focused and streamlined. This deal should provide synergies that allow the new entity to save on costs, build a more robust network and deliver a better customer experience .
The regulator is the next hurdle, and there will be some concern about the loss of competition within the market, however with margins being so thin in the industry, the idea behind the merger would be partly to find efficiencies so that they can compete effectively as possible on price and attract more customers
With Microsoft's (NASDAQ:MSFT) attempted takeover of activision (NASDAQ:ATVI), we've seen just how tough it can be to push through landscape-changing deals. But there might be some hope given how challenging and expensive the 5G rollout is, and there's a good argument that the economics of the industry need to improve for the benefit of both providers and consumers.”
Article by Matt Britzman, equity analyst at Hargreaves Lansdown
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