A full-fledged competition probe into Vodafone Group PLC (LSE:VOD)’s merger with Three was anticipated, according to the companies, but will take months to complete.
This is likely to leave Vodafone with little in the way of catalysts to drive shares up in the meantime, according to analysts, given wide focus on the £19 billion deal.
“The motivation for the merger stems from the fact that scale is one of the few levers telecoms can pull in order to generate growth,” Hargreaves Lansdown’s Sophie Lund-Yates commented.
“Traditionally, the only real differentiator is price, leading to a tough hill to climb for margins.”
However, fears that the deal would leave just three mobile operators in the UK prompted the Competition and Markets Authority’s probe, which has a cut-off point later this year.
“The outcome from this won’t be known until mid-September,” Lund-Yates added, “there will be little to move Vodafone’s share price between now and then as this is the main sentiment driver”.
Britain’s Competition and Markets Authority referred the proposed merger to an investigation on Thursday, having warned last month it could leave consumers “worse off”.
Vodafone and Three had been given a period to reassure the CMA with “meaningful solutions” to its competition concerns, but these never came.
A proposed merger between O2 and Three was blocked in 2016.
“Vodafone UK and Three UK note today’s announcement that the CMA will conduct a Phase 2 review,” the duo responded.
“As we’ve said, this was an expected next step in the process and is in line with the timeframe for completion that we set out from the outset.”
The companies believe a deal would improve competition in the wholesale market while offering better coverage for the combined entity’s 27 million customers.
Shares in Vodafone fell 1.7% to 70p.