The UK’s second-largest mobile provider O2 is to be bought for £10.25 billion (€13.5bn or $15.33bn) by Hong-Kong based Hutchinson Whampoa Limited, which belongs to Asia’s richest person, Li Ka-shing. O2 is the trading name of Telefónica UK Limited, a subsidiary of Spain’s multinational giant Telefónica, S.A.
Investment holding company Hutchison Whampoa, which already owns the Three UK mobile network, would have Britain’s largest mobile group if it combined the two companies.
Whether UK competition regulators would approve such a merger remains to be seen. The country would have just three major mobile operators, from its current four – Three UK, Vodafone, EE and O2. European Union competition regulators would also need to approve the deal.
The UK telecommunications industry is undergoing a period of consolidation, with BT Group currently in talks to buy EE, a rival operator.
Frank Sixt, finance director of Hutchinson Whampoa, said he saw no problem in the current consolidation process. He pointed to mergers in Ireland which reduced the number of major operators from four to three.
If the regulators approve, Li Ka-shing will control the UK’s mobile phone market.
Mr. Sixt said:
“The European Commission has taken a positive view of four-to-three consolidations of mobile in three cases now. We believe that the precedents that they have set in those transactions will apply for this transaction.”
The BBC quotes chief research officer at telecoms consultancy Ovum, Mark Newman, who said “The big question we should be asking ourselves is whether the consolidation will result in prices going up. It’s worth looking at the Austrian market which has gone from five operators a few years ago to three today. It appears as though prices have gone up in the Austrian market.”
In a statement issued on Thursday, Telefónica said:
“Telefónica has entered into an exclusivity agreement with Hutchison Whampoa in relation to Hutchison’s potential acquisition of O2 UK, Telefónica’s subsidiary in the United Kingdom, for £10.25bn in cash (approximately €13.5bn).”
In the agreement, Hutchison Whampoa will pay an initial £9.25 billion (€12.2 billion) at closing of the transaction, and then an additional deferred payment of £1.0 billion (€1.3 billion).
The exclusivity period will allow the two companies to negotiate definitive agreements, Telefónica informed, “while the necessary *due diligence process on O2 UK is completed.”
* Due diligence refers to the comprehensive appraisal of the operational and financial status of the other party before approving an acquisition, merger, contract, or any business arrangement.
Telefónica added:
“This operation marks another step in Telefónica’s transformation process, initiated by the Company to become a leading digital telco and accelerate sustainable long term growth while maintaining an attractive remuneration policy.”
“Additionally, this announcement occurs at a decisive moment for Telefónica, following a period during which the company has been proactively managing its portfolio of assets, significantly reinforcing its position in key markets (consolidating Germany, acquiring GVT in Brazil -pending regulatory approvals- or undertaking a commercial and technological revolution in Spain) and therefore increasing its potential for future growth.”
According to Hutchinson Whampoa, Three UK is Britain’s fastest growing 3G network operator. It is now rolling out 4G to its customers.