Vodafone: CMA's Review of Merger Raises More Questions Than Answers; Many Remedies Being Explored

The UK’s Competition and Markets Authority will require Vodafone and CK Hutchison to find remedies to get the green light for their proposed merger plan. Given most European mergers between mobile network operators in the past decade have either been blocked or were subject to significant remedies, the regulatory pushback is not surprising to us. In our view, excessive regulation is one of the main obstacles to European telecommunication firms earning acceptable returns on invested capital, in addition to being in a capital-intensive, competitive industry. The CMA has suggested many alternatives for potential remedies in the future, but nothing is definitive yet. We maintain our GBX 125 fair value estimate for Vodafone.