Hong Kong’s Hutchison Whampoa, the parent company of mobile operator 3 UK, announced that it has entered into exclusive talks for a period of several weeks with Telefonica about the acquisition of mobile operator O2 UK for GBP 9.25 billion in cash to be paid at closing and a further GBP 1 billion after the combined cash flow of 3 UK and O2 UK reaches an agreed threshold. Hutchison said that the transaction remains subject to due diligence over O2, agreement on terms and corporate and regulatory approvals.
Separately, Hutchison finance director Frank Sixt told the Financial Times that the acquisition would be completed around the middle of 2016, assuming regulatory approval. He sees a “good probability” of receiving European regulatory approval, citing Austria, Germany and Ireland, which have gone from four to three mobile carriers. Hutchison thinks it can find GBP 3 billion to GBP 4 billion of synergies through the merger. Analysts estimate that at GBP 10 billion, the price reflects 7-8 times 2015 estimated earnings, in line with what BT is paying for EE.
Telecom regulator Ofcom has sought to keep at least four competitors to keep prices low, but the proposed tie-up will take place in the context of a market where BT is in talks to acquire mobile operator EE. O2’s competitors are adding new business lines, such as fixed telecom, broadband and TV services. Telefonica seek the cash to reduce its high debt burden and fund deals in core counties such as Brazil.
If the acquisition is completed, O2 and 3 UK would become the UK’s biggest mobile operator with over 31 million subscribers, an around 41 percent share. Next would come EE with a 32 percent share and Vodafone with 24 percent. Ofcom is expected to require the combined O2 and 3 UK to give up some spectrum and to give low-cost access to MVNOs.
