Vodafone shares jump over expected merger with Three's Hong Kong owner

The move would create Britain's biggest mobile operator

Should the merger take place, Vodafone would own 51 per cent and CK Hutchison 49 per cent of the combined group. EPA

Shares in Vodafone increased 3 per cent on Wednesday after reports the company is in the final stage of agreeing to a merger of their UK operations with Three’s Hong Kong owner.

The deal with CK Hutchison would create Britain's biggest mobile operator, with an announcement on the deal expected as soon as Friday, sources told Reuters.

Vodafone would own 51 per cent and CK Hutchison 49 per cent of the combined group, which could be worth around £15 billion ($18.6 billion) including debt, in line with an announcement made by Vodafone in October, the news agency said.

The companies’ respective stakes would be achieved by adjusting the ownership of debt rather than exchanging cash, they said in October.

Talks on a deal to create Britain's biggest mobile operator have been protracted.

Hutchison's chief financial officer Frank John Sixt last month said getting it over the line was proving "extremely difficult".

Vodafone's new chief executive Margherita della Valle is under pressure to strike deals in major markets to improve the pan-European and African operator's performance.

Her predecessor Nick Read had identified Britain as one of four markets that would benefit from consolidation but a lack of progress frustrated shareholders, leading to him stepping down in December.

The tie-up would create Britain's biggest mobile operator with about 27 million customers, overtaking BT's EE and VM O2, owned by Telefonica and Liberty Global.

The deal will face intense scrutiny from regulators who have previously opposed deals that reduce the number of networks in major markets from four to three.

Vodafone and Hutchison have argued, however, that the deal would benefit consumers by creating a network with the scale to roll out full 5G and expand broadband connectivity.

Hutchison has said it does not cover the cost of its capital in Britain, potentially hampering its ability to invest.

Sources in April told Reuters the companies could commit on network investments as part of their approach to regulators.

Hutchison's senior leadership met British government officials in March to seek political support for the deal, the sources said. A few weeks later, the government confirmed its "openness to market consolidation".

Hutchison and Vodafone have declined to comment.

The UAE’s biggest telecoms operator e& this year increased its stake in Vodafone Group to 14 per cent, as it continued to consolidate its shareholding in the British company as part of its international expansion plans.