Li Ka shing has another big move overseas! Merge | UK | Li Ka shing

China Fund News reporter Ivan

Li Ka shing's family's overseas business has made big moves again!

On the evening of June 14th, Cheung Kong Hutchison Industries Limited, a subsidiary of the Li Ka shing family, announced a binding agreement with Vodafone Group to integrate their telecommunications business in the UK.

According to the announcement, a joint venture will be established with Vodafone, and Three UK and Vodafone UK will become subsidiaries of the joint venture. The newly established shareholders of the joint venture include Vodafone and CKHGTH, a European telecommunications company under Changhe, with 51% and 49% equity respectively.

According to the agreement, this transaction does not involve cash payments, and 3 UK and Vodafone UK will enter into a joint venture by injecting different debts into the business. This transaction is expected to be completed by the end of 2024.

It is worth noting that this transaction is the largest corporate merger in the UK mobile market in over a decade. If it successfully passes regulatory review, it will create the largest mobile communication company in the UK with 27 million customers.

According to reports from Reuters and the Financial Times in early May this year, the equity value of the merged group will reach £ 9 billion, while the new company will bear approximately £ 6 billion in debt, bringing its corporate value to £ 15 billion.

Investment of nearly 100 billion yuan in the next decade

Building one of the most advanced 5G networks in Europe

Changhe stated that the board of directors believes that the merger of Vodafone UK and 3 UK will help the merged company improve customer experience and establish a first-class mobile telecommunications network in terms of coverage and reliability in the UK. Vodafone UK and 3 UK customers will pay the same price and receive relatively higher value due to better network quality. Starting from the first day of the merger, at least 7 million customers will benefit from improved network performance.

The announcement shows that the joint venture company will establish a six member board of directors, with three directors appointed by each of the two. Ahmed Essam, the current UK CEO of Vodafone, will serve as the CEO of the merged company, while Darren Purkis, the current 3 UK CFOs, will serve as the CFO of the merged company.

The announcement mentions that the merged company's independent 5G network will cover over 99% of the UK population and provide customers with up to six times the average data speed by 2034. The merged company will invest £ 11 billion in the UK over the next decade to establish one of the most advanced independent 5G networks in Europe.

Vodafone CEO Margherita Della Valle said, "For Vodafone, this transaction will change the rules of the game in our domestic market. This is a vote of confidence in the UK and its ambition to become a future technology center."

In addition, Changhe also stated that the transaction will enable the merged company to make significant investments in the UK to establish one of Europe's most comprehensive 5G networks, thereby driving economic growth, innovation, and employment across the UK and various regions. Changhe emphasized that through the merger of businesses, the merged company will have the necessary scale and platform for future investment, development, and competition, challenging the two major operators BTEE and Virgin Media-O2.

Changhe Co Managing Director Huo Jianning stated that currently, both the UK and Vodafone UK lack cost-effective scale, which has a long-term impact on their investment and competitiveness. Becoming a new partner with Vodafone will enable the company to have the necessary scale to jointly provide 5G networks to the UK. Moreover, the merger can release huge value for the group and shareholders, realize significant synergies, reduce net debt, and further strengthen the group's financial situation.

Transactions or facing strict regulatory scrutiny

This transaction will undergo several months of regulatory review. According to media reports such as Reuters and Bloomberg, this transaction may face strict regulatory scrutiny as the UK government opposes reducing the number of telecommunications operators from four to three.

As early as 2016, regulatory authorities rejected a similar proposal to merge the UK with Virgin Media O2. In a ruling before the UK's withdrawal from the EU, the EU blocked the transaction on antitrust grounds, which is still ongoing but has been questioned in court.

According to data, Vodafone and 3 UK competitors are the larger British telecommunications groups BT Group Plc and Virgin Media O2, which are jointly owned by Liberty Global Plc and Spanish telephone company after merging their UK operations in 2021. Unlike Vodafone and 3 UK, BT and VMO2 have fixed networks to sell consumer broadband.

Paolo Pescatore, a technology, media, and telecommunications analyst at PP Foresight, said that considering that the two companies have consistently outperformed the market in the past year or so, this will be a difficult sales journey. "Let's see if the authorities have changed their minds. Both sides need to prove that this truly aligns with the interests of British companies, the economy, and consumers in order for it to have a chance to cross this line."

"A £ 11 billion online investment plan will seek to alleviate regulatory concerns. However, this transaction will still face significant challenges in obtaining approval. At this stage, I believe it is difficult to determine either approach," said Kester Mann, Consumer and Connectivity Director at CCS Insight.

Analysts at New Street Research predict that antitrust investigations by the UK Competition and Market Authority and the UK Communications Authority may take up to 18 months. The transaction has been opposed by the United Kingdom Union, which has raised the possibility of layoffs and rising consumer bills.

In fact, in mid May this year, Vodafone announced plans to lay off 11000 employees over the next three years, accounting for approximately 12% of the total number of employees. The scale of layoffs is the largest in the company's history. Vodafone currently has approximately 100000 employees. Margherita Della Valle stated that this move aims to simplify the company's internal structure and regain competitiveness. She also stated that she will reallocate resources to provide the services expected by customers.

Li Ka shing Further Improves Family Wealth Planning and Arrangement

Adjusting equity distribution within the company

Recently, Li Ka shing has once again adjusted his shareholding distribution in various companies within the family, further improving the wealth planning arrangements of the Li family.

According to the disclosure of equity by the Hong Kong Stock Exchange, on May 16th, Li Ka shing transferred some of his privately held equity in Changhe and Changshi to the Li Ka shing Family Trust Fund.

Taking Changhe as an example, Li Ka shing transferred his privately held 1.3593 million shares of Changhe to Li Ka Sing Unity Trust Corporation and Li Ka Sing Unity Trustcorp at an average price of 53 yuan per share. According to Webb website data, the major shareholder of both trust companies is Li Zeju, holding approximately 66.7% of the shares, while the remaining 33.3% is held by Li Ka shing. On the same day, Li Ka shing transferred his 62.9533 million shares of Chang Shi held in his private name to Li Ka Shing Unity Trust Corporation and Li Ka Shing Unity Trustcorp at an average price of 46.45 yuan per share.

In addition, regarding the transfer of approximately 196 million shares of Postal Savings Bank's H-shares held by Li Ka shing and Li Zeju's private company Silver Ring, based on the closing price of the day, the market value of these shares exceeds HKD 1 billion. A spokesperson for Changhe Group stated that the transfer was based on an internal restructuring of the Li family's wealth planning arrangement, which included Silver Ring's H-shares in Postal Savings Bank in the family trust.

In fact, according to Hong Kong media reports, Li Ka shing had already made arrangements for a separate family before retirement, with his eldest son Li Zeju inheriting the Yangtze River Group and his second son Li Zekai receiving funding to support his business development.

According to Forbes Rich List data, as of June 15th, Li Ka shing's wealth reached $37.8 billion, ranking 34th on the world's richest list.