Hutchison on verge of O2 deal - reports

Hutchison on verge of O2 deal – reports

24 MAR 2015
Hutchinson Whampoa

Hong Kong conglomerate Hutchison Whampoa, owner of 3 UK, the smallest mobile network operator in the UK, is said to be closing in on a £10.25 billion deal to land Telefonica-owned O2, the second largest mobile player.

Exclusive talks between Hutchison and Telefonica have been rumbling on since January, but various media reports – citing unnamed sources – said due diligence had not uncovered any major obstacle and that an announcement was imminent.

Such has been the speculation that Hutchison issued a statement today saying “exclusive negotiations” were still ongoing.

The deal on the table, as reported in January, was that Hutchison would pay Telefonica £9.25 billion in cash to take control of O2, and a further £1 billion in deferred payments when the combined business hits certain cash flow targets.

State-backed funds from China, Singapore and the Middle East, have reportedly been in discussions to pump “billions of pounds” into a merger of 3 UK and O2 in exchange for a stake of up to 30 per cent in the newly-created entity.

The prospect of a newly-emboldened BT, assuming it gets regulatory clearance to acquire EE – the largest mobile operator in the UK – is no doubt a factor in Hutchison and Telefonica seeking to pool their UK assets and become a stronger competitor.

Telefonica will also welcome the cash windfall to reduce its huge debt pile. Synergies, too, are on the cards. According to Enders Analysis, O2 and 3 are expected to save £250 million annually by only having to invest in one network.

Not that the tie-up is plain sailing, even if the financing is in place. The merger of 3 and O2 would create the largest mobile operator in the UK, and so alert anti-trust authorities.

In a move that might help convince competition watchdogs that a Hutchison Whampoa takeover of O2 is not a bad thing, satellite broadcaster Sky recently announced it would launch its own mobile network next year after signing a wholesale deal with Telefonica’s UK mobile subsidiary.

Sky’s entry into mobile is in anticipation of BT’s big-time return to the UK mobile consumer market via EE.

Author

Ken Wieland

Ken has been part of the MWC Mobile World Daily editorial team for the last three years, and is now contributing regularly to Mobile World Live. He has been a telecoms journalist for over 15 years, which includes eight...More

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