The merger of Vodafone and Vodafone is ‘extremely hard’ due to national security concerns

The talks between Vodafone and to merge their UK business with rival Three, owned by China, are “extremely challenging” to conclude amid demands that any deal be investigated for national security reasons.

Three’s owner CK Hutchison is controlled by 94 year old Hong Kong billionaire Li Ka Shing. FTSE listed Vodafone and Three hope to force through a merger between their UK mobile businesses in a deal valued at around PS15bn.

Frank John Sixt warned that despite speculations in the City about the imminent tie-up, the talks were still a long way off.

Mr Sixt stated: “It’s likely, as it has been speculated, that we will come to an agreement with our friends at Vodafone.

“Vodafone is a very difficult company to work with, on one hand. But on the other, they are a great partner.

“So, the first part of the sentence makes me more sceptical. But the second part gives me more optimism.”

Three UK’s spokesman refused to comment on the possible difficulties that could be holding up the discussions. Sources close the parties said they thought discussions were “very positive” as well as progressing towards their conclusion.

Unions and China-sceptic politicians have been extremely opposed to the potential merger between Three UK and Vodafone UK’s UK mobile division. They are concerned about national security and job opportunities.

The merger of Britain’s third- and fourth largest mobile operators will create a company with 27 million combined customers.

This deal will likely be a litmus test for Britain’s new takeover regime. The deal is expected to result in a joint venture where Three and Vodafone will have a 49pc share, which could decrease over time.

The companies have been in talks since May last year.

Unite’s union leaders have warned Margherita Della Vale, Vodafone CEO, that the merger could raise “profound questions of national security” and are lobbying politicians and officials about the deal.

The letter, which was first published by The Telegraph last month, stated that a tie-up would allow the CK Group to have a much more powerful and prominent place in the UK’s telecommunications infrastructure.

We therefore believe that these links raise significant questions about national security in relation to any merger.

Former Conservative Party leader Sir Ian Duncan Smith has called on officials to stop any transaction.

There could be further complications if there are any concerns about the merger. However, industry executives think it has a high chance of approval to reduce the number players on the UK mobile market.

The proposed tie-up is defended by those who say that CK Hutchison’s presence in the UK dates back 20 years, and any agreement will be scrutinized by security officials.

Vodafone and Three are confident that their combined power will allow them to make sustainable investments.

Sixt made his remarks as a British minister visited Hong Kong in an effort to strengthen business relations.

Lord Dominic Johnson, Investment Minister, met with Hong Kong leaders, Victor Li, Chairman of CK Hutchison and Canning Fok, senior executive, to discuss investment plans for the UK.

Un spokesman for the Business Department refused to comment on whether or not merger talks between Vodafone and Business Department were discussed.

Sam Goodwin is the policy director of human rights group Hong Kong Watch. He said: “I can’t understand how this merger, which would give a Hong Kong company joint ownership over the largest UK mobile service provider, doesn’t trigger National Security and Investment Act.”

Three announced its first quarter results for 2023 on February 2. It said that its UK revenue had increased by 5pc, to PS610m. The company now has more than 10,3 million customers.

Robert Finnegan warned that Three’s CEO’s return on capital was “below cost of capital”. He said: “Market structure change is required.”