Vodafone and Three confirm mega-merger talks

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4th October 2022

Bite-sized business news from the UK and beyond

Good morning Yesterday we said that this week would be another tricky one for the government, and within minutes of hitting send, the decision to scrap the 45p tax rate on people earning over £150,000 was reversed. Investors welcomed the U-turn and in response, the pound rose and interest on government borrowing fell - although still above levels seen before the mini-budget announced 11 days ago.

Today's stories

Vodafone and Three confirm mega-merger talks
Trouble at Credit Suisse

TELECOMS
Vodafone and Three confirm mega-merger talks

What happened?
Yesterday Vodafone confirmed that it is in merger talks with rival Three to create the UK’s largest mobile operator.

How did we get here?
Vodafone is the country’s third biggest mobile provider and has twice as many subscribers as Three, the number four player. Combined they have 27m customers, more than current leaders EE and O2.

The new company would be 51% owned by Vodafone with Three’s current owner, Hong Kong business group CK Hutchinson, owning the remaining 49%.

The deal would be heavily scrutinised by the competition watchdog the CMA
Typically reducing the number of players in any industry risks making consumers worse off through less competition and higher prices.

However in recent years Vodafone has faced criticism from investors for a lack of scale, in a sector where big companies tend to do better as they can do large infrastructure investment, that has undermined shareholder returns.

Hutchison has been exploring a sale of Three as it's struggled to match the scale of its bigger rivals.

A report from the industry regulator Ofcom also found that both Vodafone and Three had delivered returns on investments below the financing cost, effectively losing shareholder money.

Combining Vodafone and Three would therefore give the new company greater scale to save costs, invest more and drive shareholder value. Many analysts think that this could be enough of a rationale for the competition watchdog to approve a merger.

Zooming out: Amid a cost of living crisis it may be difficult for the CMA to approve a deal that could increase consumer prices. However there is recent precedent for telecoms mergers. BT bought the EE in 2015 while Virgin Media and O2 merged in 2020.

Other stories to keep you in the loop

Millions will receive £324 cost-of-living payment in November
‘Significant risk’ of winter gas shortages in Great Britain, warns Ofgem
October ‘marks weakest start to the month for mortgage choice in over a decade’
Google UK staff earned average of more than £385,000 each in 18 months
President Zelensky and Elon Musk in row over Ukraine 'peace plan poll'

BANKS
Trouble at Credit Suisse

What happened?
Shares in Credit Suisse plunged yesterday after the CEO’s attempt to calm employees and investors that the bank was in trouble backfired.

How did we get here?
Speculation grew over the weekend that the Swiss banking giant may be short on capital and could soon face default creating fears there could be another bank collapse like that of Lehman Brothers in 2008.

CEO Ulrich Körner sent a memo assuring employees that the bank has a “strong capital base and liquidity position,” but it remains in a “critical moment” ahead of a massive overhaul.

But the message was more unsettling than reassuring. Credit Suisse’s stock price fell to a record low having lost 60% of their value so far this year. Spreads on its credit default swaps – which measures the cost of insuring against the bank’s default - spiked, suggesting that investors are worried about it potentially failing.

It comes as the bank prepares to unveil a restructuring plan to improve performance which may include job cuts, selling assets and asking investors for more cash, on 27 October.

The news is the latest in the bank’s chequered history
It’s suffered huge losses from the high profile collapses of finance firms Archegos Capital and Greensill Capital and was fined for its involvement in a loan scandal in Mozambique. It’s also seen a revolving door of leadership. In January the Chairman resigned after flouting Covid-19 quarantine rules to attend sports events. And in 2019 it admitted to hiring private detectives to track two outgoing executives.

Stat of the day

Kim Kardashian has been fined almost $1.3m by US finance regulators for unlawful crypto advertising

Interesting links from around the web

The history of Black History Month UK
How to resell clothes successfully and responsibly
The app that shows all the nearest public toilets on a map

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Vodafone and Three confirm mega-merger talks

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Another tricky week ahead for government

Next cuts profit targets amid gloomy consumer outlook

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