Three in exclusive talks to buy O2 for £10bn

23-Jan-2015

Telefonica has confirmed that it is in exclusive talks with Hutchison Whampoa, owner of the mobile operator Three, for the sale of its UK subsidiary O2 for £10.25bn in cash.

The Spanish telecoms giant said the pair were negotiating an upfront payment of £9.25bn with an additional £1bn to be paid "once the cumulative cash flow of the combined company in the UK has reached an agreed threshold" It said the exclusivity period will last several weeks, allowing the pair to finalise the deal and for Hutchinson Whampoa to complete due diligence on O2.The move will mean more upheaval for a sector still digesting BT’s planned takeover of EE. The combination of Three and O2 will create Britain’s biggest mobile operator, with 32m customers, leapfrogging EE’s 28m and relegating Vodafone to last place with 20m.

It will cut the number of networks from four to three, triggering a competition investigation. The industry regulator, Ofcom, has for years resisted calls for more consolidation in the industry following the 2010 merger of Orange and T-Mobile, to form EE. Rumours that Hutchison, controlled by the Hong Kong billionaire Li Ka-Shing, could seek a consolidation deal in the UK emerged in November after BT confirmed it was in talks with both Telefonica and the owners of EE. When BT chose to enter exclusive talks to buy EE for £12.5bn in December, Telefonica was widely seen as likely to seek a quick alternative exit from O2. The Spanish group has been working to reduce heavy debts and expand in Latin America. 

To protect consumers in other consolidating European mobile markets, regulators have imposed conditions including guarantees for ‘virtual’ mobile operators who buy wholesale access to networks then use their own brand to sell to customers. In Britain they include Tesco Mobile and TalkTalk. Sky, without a mobile offering to match BT’s plans for EE, has also held recent talks with both Vodafone and O2 about a wholesale deal, so could also benefit. As well as competition hurdles, Hutchison will have to find a way to disentangle the two network sharing deals that O2 and Three are signed up to with Vodafone and EE respectively. The complications prompted O2 chief executive Ronan Dunne to comment in November that he saw a merger with Three as the least likely of all possible scenarios for consolidation.

Source: Daily Telegraph 23rd January 2015



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