Hutchison to Buy O2 for £10billion

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Hutchison Whampoa will become the UK’s biggest mobile phone operator after agreeing a deal to buy O2.

The 10.25 billion-pound ($15.3 billion) price includes an initial sum of 9.25 billion pounds in cash, with a deferred payment of £1 billion to be paid once the combined cashflow of Three and O2 has reached an undisclosed amount.

After the execution of the deal, O2 UK will be reported as a discontinued operation within Telefonica, although it remains to be seen whether Hutchison will maintain the O2 brand.

O2 said regulatory approval may take a year, while Telefonica said it expects the transaction to be completed by June 2016. A Hutchison representative confirmed the accord, reached after two months of exclusive talks.

O2 CEO Ronan Dunne said:

“O2 has always sought to provide the very best customer experience. Subject to regulatory approval, the deal that has been agreed today will result in the creation of the most customer-centric mobile operator in the UK.”

The deal paves the way for Hutchison to merge its Three business with O2 — the carriers together have more than 30 million subscribers — in a move that would reduce the number of U.K. wireless networks to three from four.

Hutchison is betting on size to compete, taking on rivals that are adding services such as TV and Internet access to lure customers.

“They can drive a lot of synergies,” said James Britton, an analyst at Nomura Holdings in London.

“Whether that really equips them to be fully competitive in a converged U.K. market remains to be seen.”

Hutchison is selling 30 percent of the enlarged business, a stake it values at as much as 3 billion pounds, people familiar with the matter said, asking not to be named because the matter is private. Hutchison is in talks with investors including Singapore’s GIC Pte and Canada Pension Plan Investment Board, and has also held discussions with potential partners including Qatar’s sovereign-wealth fund, they said.

O2’s sale will help Telefonica reduce its debt pile, which doubled in the past 10 years as the company expanded across Europe and Latin America. Telefonica in February reported net debt of 45 billion euros.
Telefonica agreed to sell its Irish unit to Hutchison for as much as 850 million euros in 2013.

Telefonica and Hutchison’s next hurdle would be getting the accord past regulators, who are keen to prevent price increases for customers in a market with fewer competitors. Frank Sixt, Hutchison’s finance director, has said the deal’s approval will probably rest with European authorities in Brussels, rather than U.K. officials.

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