By Shayndi Raice, Dana Mattioli and Christopher Bjork
Li Ka-shing's Hutchison Whampoa said it has agreed to entered
into exclusive talks to buy U.K. mobile-phone operator O2 for
potentially more than GBP10 billion ($15 billion) in what would be
the latest big consolidation move in that country's fast-changing
wireless market.
The proposed deal includes a purchase price of GBP9.25 billion
in cash plus up to GBP1 billion in deferred upside interest-sharing
payments, Hutchison said in a statement Friday. The negotiations
with O2 parent Telefónica SA of Spain would occur over a "period of
several weeks, " the Hong Kong-based company said.
Hutchison owns Three, Britain's fourth-largest wireless carrier.
Combining the two operators would create the largest mobile-phone
company in the country by subscribers.
EE, currently the No. 1 player in the market, is in advanced
talks to be bought by BT Group PLC, a tie-up that would get the
British fixed-line giant back into wireless service and further
shake-up the fast-moving European telecommunications sector.
A deal for O2 would be the latest in a recent string of
in-country telecommunications mergers in Europe.
Facing stalling revenue in fiercely competitive and mature
markets in the region and encouraged by strong equity prices,
European telecom companies are seeking tie-ups that will enable
them to get bigger and more efficient.
BT in mid-December said it had entered into exclusive talks to
buy EE for GBP12.5 billion. BT said at the time that the talks were
likely to continue for several weeks with EE owners Deutsche
Telekom AG of Germany and France's Orange SA.
The announcement came after weeks of discussions BT had held
with EE and O2, which was seen by many as a more likely partner in
part because it has one owner, which could make for simpler
negotiations.
In the wake of BT's decision to acquire EE, there has been
widespread speculation that O2 would set its sights on a deal with
Hutchison.
Mr. Li, 86, has spent $34 billion on acquisitions outside of
Hong Kong since the 2008 financial crisis.
A retreat from the U.K. could allow Telefónica, one of Europe's
most indebted firms, to significantly cut its borrowings, which now
stand at more than EUR40 billion ($45 billion), and free up cash
for investments in markets where it is considered to have a
stronger competitive position, such as in Latin America, analysts
said.
The Madrid telecommunications company has rejiggered its
footprint in recent years, exiting countries including Ireland and
the Czech Republic, while bulking up in Germany and Brazil.
Telefónica shares rose 10 cents, or less than 1%, to $14.56 in 4
p.m. New York trading on Thursday. Hutchison shares were up 55
cents at 98.30 Hong Kong dollars, also on Thursday.
An effort to combine the second- and fourth-largest players in
the U.K. wireless market, could face tough antitrust scrutiny. The
two together would have about 31 million customers.
Mr. Li, one of Asia's richest people, this month announced a
reorganization of his empire to separate his Hong Kong property
assets from his internationally focused conglomerate, which
includes businesses such as operating ports and
telecommunications.
The octogenarian controls two major companies listed in Hong
Kong, Cheung Kong (Holdings) Ltd., his flagship holding company,
and Hutchison Whampoa.
The real-estate assets of Cheung Kong and Hutchison are to be
separated into a new company, also listed in Hong Kong.
The remaining assets of both companies, which include ports in
26 countries, mobile-phone operations and a stake in Canadian oil
company Husky Energy Inc., will be listed separately.
Yvonne Lee and Simon Zekaria contributed to this article.
Write to Shayndi Raice at shayndi.raice@wsj.com, Dana Mattioli
at dana.mattioli@wsj.com and Christopher Bjork at
christopher.bjork@wsj.com
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