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O2 to be bought for £10.25bn by Three-owner Li Ka-Shing's Hutchison Whampoa O2 to be bought for £10.25bn by Three-owner Li Ka-Shing's Hutchison Whampoa
(about 4 hours later)
Hutchison Whampoa, the firm of Asia's richest man Li Ka-shing, has agreed to buy mobile network O2 for £10.25 billion from Spain's Telefonica, in a move that will create Britain's largest mobile operator. Britain’s mobile phone industry today faces its biggest shake-up since the first call was made 30 years ago.
Hutchison already operates the Three Mobile and the combination with O2 will contribute to consolidation of the UK market, which is currently split between four mobile network operators and four separately owned fixed-line and broadband providers. Asia’s wealthiest businessman Li Ka-shing's Hutchison Whampoa has entered exclusive talks to buy O2, the UK’s second-largest mobiles network.
BT had previously shown interest in O2, which was acquired by Telefonica in early 2006 and has about 22 million subscribers, but decided instead to enter exclusive merger talks with the owners of EE, Britain's biggest mobile operator. He will put it together with his Three network to create the biggest UK network by some distance and push Vodafone down into third place.
Li, who owns a sprawling ports-to-property empire, has been heavily investing in Europe, looking to snap up businesses from operators who have been battered by Europe's debt crisis. Vodafone and BT shares shot to the top of the FTSE 100 leaderboard on hopes that fewer competitors would mean they could raise prices.
The deal will mark Li's biggest ever acquisition, overtaking Hutchison's $7.5 billion purchase of Britain's Northumbrian Water Group in 2011, according to Thomson Reuters data. Hutchison will pay at least £9.25 billion and up to £10.25 billion for O2 depending on the combined networks’ future cashflow.
European competition regulators will need to look at the deal and what the impact might be of reducing the number of mobile operators in Britain. They have in the past given the green light to consolidation in other countries in the region. The deal comes a month after BT entered exclusive talks to buy EE, the Orange and Deutsche Telekom-owned network, for £12.5 billion. It had first looked at O2 but preferred to go with the larger business.
Additional reporting by Reuters Li’s bid appears to be considerably higher than earlier numbers being talked about. It also trumps any potential acquisition by UK competitors Sky and TalkTalk, which were looking at deals or tie-ups with O2 .
But the shrinking of UK mobile suppliers from four to three could face major competition problems with UK and EU regulators likely to investigate both deals.
Hutchison Whampoa said it will offer private-equity firms and other big investors up to 30% of the deal but will raise the majority of the cash for the bid through a £6 billion bank loan.
Li this month announced a massive restructuring of his business and property empires which analysts said would increase his firepower by some $7 billion (£4.6 billion).
He has already made major acquisitions in the UK ranging from Northumbrian Water for £2.4 billion in 2011 to this week’s £1.1 billion takeover of rolling stock group Eversholt Rail.
The deal is being driven by Li’s lieutenant Canning Fok, who headed Three in the UK when it first bought a mobile licence in the £22.5 billion 3G spectrum auction run by then Chancellor Gordon Brown.
Hutchison finance director Frank Sixt predicted savings of between £3 billion and £4 billion from the combination.
He said the deal might not be completed until 2016 because of competition fears from the EU.
But he added: "The European Commission has taken a positive view of four-to-three consolidations of mobile in three cases now and we believe that the precedents that they have set in those transactions will apply for this transaction."
Hutchison already owns Three Italia and last year bought Telefonica’s Irish O2 business.