Hong Kong billionaire Li Ka-shing is looking to merge with CK Hutchison's Three. Credit: Bobby Yip/REUTERS
Vodafone's talks to merge its UK business with Chinese rival Three are facing an «extremely difficult» conclusion amid calls to investigate any deal on national security grounds.
Three CK Hutchison owner, controlled 94-year-old Hong Kong billionaire Li Ka-Shing and FTSE-listed Vodafone are hoping to merge their UK mobile operations in a deal valued at around £15bn.
While City sources suggest a merger is imminent, Frank John Sixt, chief financial officer of CK Hutchison, warned that the talks hit a roadblock towards the end.
Mr Sixt said: «Probably as we were supposed to come to an understanding with our friends from Vodafone.
“While I would say that it is extremely difficult to draw a conclusion with them [Vodafone], on the one hand, but on the other hand, they , in the end, very good partners.
«So the first part makes me a little more skeptical, but the second part makes me a little more optimistic.»
Three UK's spokesperson declined to comment on what difficulties might delay the talks. be. Sources close to the parties said they believed the discussions had been «very positive» and were nearing completion.
A potential merger of Vodafone's mobile unit in the UK with Three UK has met with fierce resistance from China-skeptical MPs and unions amid concerns over national security and employment.
The merger of the UK's third and fourth largest mobile operators will lead to create a business with a total number of customers of 27 million.
The deal is likely to be a key litmus test for the tightening of the UK takeover regime. The merger is expected to create a joint venture between Vodafone and Three, in which the Hong Kong company will own a 49% stake, which may decrease over time.
Negotiations between the companies began in May last year and have been going on for almost a year.
However, Unite union bosses have written to Margherita Della Valle, chief executive of Vodafone, warning of «serious national security issues» in relation to the potential merger, and have lobbied MPs and officials for a deal. a far more visible and powerful place at the heart of the UK's telecommunications infrastructure,” said the letter, first published by The Telegraph last month.
< p>«Therefore, we believe that such links raise important national security questions regarding any proposed merger.»
Sir Ian Duncan Smith, former leader of the Conservative Party, urged officials to block any transaction.
Further complications could arise from any competition concerns about the mega-merger, although industry leaders believe it has a good chance of being approved to reduce the number of players in the UK mobile market.
Defenders of the proposed merger-up argue that CK Hutchison has been in the UK for 20 years and any deal would be subject to the usual oversight by security officials.
Vodafone and Three believe this alliance will give them the firepower for sustainable investment.
Mr Sixt's speech comes as a British government minister visits Hong Kong for the first time in five years in order to strengthen business ties.
Investment Minister Lord Dominic Johnson held talks with Hong Kong leaders and met with them. with Victor Lee, Chairman of CK Hutchison, and Chief Executive Officer Canning Fock to discuss their investment plans in the UK.
The Commercial Department spokesman did not comment on whether merger talks with Vodafone were discussed.
< p>Sam Goodwin, director of policy for advocacy group Hong Kong Watch, said: «I don't see why this is a planned merger that would allow a Hong Kong company to jointly own Britain's largest mobile operator. This would lead to the passage of the National Security and Investment Act.»After releasing its results for the first three months of 2023 on Tuesday, Three said it had increased its UK revenue by 5 per cent to £610m, while now having 10.3m customers .
Robert Finnegan, Three's chief executive, however, warned that the company's earnings remain «below the cost of capital», adding: «Market structural changes are needed.»
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