UK Telecom Merger Under Fire: Vodafone-CK Hutchison Deal Under National Security Review

In a recent update, Margherita Della Valle, the CEO of British telecommunications giant Vodafone, has confirmed that the proposed merger between Vodafone and Three UK, a telecom company owned by Hong Kong billionaire Li Ka-shing’s CK Hutchison Holdings, is undergoing a national security review in coordination with the UK government under the National Security and Investment Act.

The merger deal, as previously announced by Vodafone and CK Hutchison, involves a staggering $19 billion USD (approximately ¥140 billion RMB). Upon completion, the merged entity is set to become the largest mobile network operator in the UK, serving over 27 million customers, roughly a third of the UK’s total population. Vodafone will hold a 51% stake in the merged company, with CK Hutchison holding the remaining shares.

The CK Hutchison family, often humorously referred to as having “bought half of Britain,” has diversified investments spanning water utilities, telecommunications, railway leasing, port terminals, airports, real estate, and financial markets. However, since 2020, there have been reports of the Li Ka-shing family gradually divesting significant assets in the UK.

UK’s Abrupt Action

On February 7th, according to reports from the Global Times, British newspapers The Telegraph and The Guardian, Margherita Della Valle, the CEO of Vodafone, confirmed that the proposed merger between Vodafone and Three UK, a telecom company owned by Hong Kong billionaire Li Ka-shing’s CK Hutchison Holdings, is undergoing a national security review by the UK government under the National Security and Investment Act.

Some American media outlets have pointed out that this implies the UK government holds the authority to block the deal on national security grounds.

Despite CK Hutchison’s longstanding presence in the UK market for over two decades, the conglomerate has been baselessly accused of posing potential risks to UK national security. Despite denials from both Vodafone and Three UK, the proposed merger is still subject to rigorous scrutiny by UK authorities.

Last year, Vodafone and CK Hutchison announced the merger deal worth $19 billion USD (approximately ¥140 billion RMB), potentially reducing the number of participants in the UK mobile communications market from four to three.

On June 14th last year, CK Hutchison announced on the Hong Kong Stock Exchange the ongoing merger of its telecommunications business in the UK with Vodafone. This move could signify a historic consolidation of the UK telecommunications market into three major players: Vodafone + Three UK, O2, and EE.

Presently, the UK telecommunications market is dominated by four operators: Vodafone, Three UK, O2 (with 24 million users), and EE (with 25 million users). Following the merger of Vodafone and Three UK, the merged entity is poised to become the largest mobile network operator in the UK, serving over 27 million customers, roughly a third of the UK’s total population.

At the time of the announcement, it was stated that the merged company plans to invest £11 billion over the next decade to establish Europe’s most advanced independent 5G network. Vodafone will hold a 51% stake in the merged company, with CK Hutchison holding the remaining shares. This deal is subject to approval from regulatory authorities and shareholders, with completion expected by the end of 2024.

In late January, the UK antitrust regulator, the Competition and Markets Authority (CMA), announced a 40-day initial investigation into the merger deal. The investigation focuses on the impact of this transaction on competition in the UK mobile communications market, determining whether it could lead to a “substantial lessening of competition.” If necessary, the CMA may conduct a second-stage review, which could extend the investigation period to 24 weeks.

Unexpected Turn of Events

The future of this multi-billion-dollar merger deal faces uncertainty due to the UK government’s review.

According to reports from The Telegraph, on February 5th, when asked if the UK authorities were reviewing the deal under the National Security and Investment Act, Vodafone CEO Margherita Della Valle confirmed: “Indeed, like all similar transactions, we are cooperating with the National Security Agency’s review process.”

Della Valle added that both Vodafone and CK Hutchison are subject to strict regulations under UK data protection and telecommunications security laws, and the review is proceeding “as planned.” She stated, “I believe this demonstrates that we both comply with rigorous regulations, which apply in different circumstances.”

According to The Guardian, the UK’s National Security and Investment Act came into effect in early 2022, empowering the UK government to review and intervene in acquisitions that could harm national security. If the acquisition involves sensitive industries such as defense, energy, and communications, and the acquisition rate exceeds 25%, the UK government has the authority to conduct a review.

Reportedly, due to Vodafone’s sensitive government contracts and submarine cable networks in the UK, some members of parliament and union leaders have expressed concerns that CK Hutchison, the parent company of Three UK, might be granted access to sensitive UK infrastructure, leading to strict scrutiny of the merger deal.

The report mentions that the Li Ka-shing family’s support for the Hong Kong Chief Executive Carrie Lam and the Hong Kong National Security Law has drawn criticism from some quarters.

Both Vodafone and Three UK have denied the baseless accusations, emphasizing CK Hutchison’s more than 20 years of deep involvement in the UK market, where it holds numerous assets, including the Port of Felixstowe, health and beauty retail chain Superdrug, railway leasing company Eversholt Rail, power distribution infrastructure UK Power Networks, and Northumbrian Water.

Della Valle also revealed that if the merger deal proceeds successfully, Vodafone will hold a 51% stake in the joint venture and plans to gradually dilute CK Hutchison’s shareholding. The CEO of the joint venture will be appointed by Vodafone.

Li Ka-shing’s Retreat

According to reports from Jiemian News citing the Financial Times, the Li Ka-shing family’s holdings in the UK primarily consist of public utility assets. They once controlled approximately a quarter of the UK’s electricity distribution market, nearly 30% of the natural gas supply market, close to 7% of the water supply market, over 40% of the telecommunications market, and nearly a third of UK ports, earning the family the nickname “buyer of half of Britain.”

According to the BBC, CK Hutchison, a subsidiary of Li Ka-shing’s Cheung Kong Holdings, is the largest single overseas investor in UK history, with a total accumulated investment exceeding £25.55 billion RMB. Investment projects span water utilities, telecommunications, railway leasing, port terminals, airports, real estate, and financial markets.

However, since 2020, Li Ka-shing appears to have begun withdrawing from the UK. Reports have emerged of the family continuously divesting significant UK assets, including the sale of its telecommunications infrastructure business in European markets, holding Hess Energy for over 34 years, and the UBS London headquarters building. The Li family’s UK power distribution company, UK Power Networks, has also been rumored to be seeking buyers, with an estimated value of £15 billion (approximately ¥126 billion RMB).

In March 2022, Cheung Kong Industries Group announced that its indirectly wholly-owned subsidiary had entered into a sale and purchase agreement with Broadgate Five Holdings (Jersey) Limited as the seller and buyer, respectively, to sell the “5 Broadgate” office building located in London, UK. The sale price is £729 million (approximately ¥6 billion RMB).

In July 2022, CK Hutchison’s Long and Mercer (Cheung Kong), Cheung Kong Industries Group (Cheung Kong), and CK Infrastructure Holdings jointly announced that US private equity giant KKR would acquire 25% of the Li family’s stake in the UK water company Northumbrian Water. The basic price is £867 million (approximately ¥6.7 billion RMB).

About The Author