By Yvonne Lee
Li Ka-shing's potential $15 billion purchase of one of Britain's
biggest cellphone operators would be the Hong Kong billionaire's
biggest deal overseas yet, and would cement his telecommunications
company as one of Europe's top wireless firms.
Just days after announcing a split of his Hong Kong business
empire and announcing takeovers of a British maker of rolling stock
and a Dutch drugstore chain, Mr. Li has gone back on the hunt.
Mr. Li's Hutchison Whampoa said Friday that it was in exclusive
talks to buy O2 from Spain's Telefónica SA for GBP9.25 billion in
cash, plus up to GBP1 billion in deferred upside interest-sharing
payments, putting the potential total price tag for the U.K.
wireless operator at more than GBP10 billion. It said the talks
with Telefónica will be exclusive for a "period of several
weeks."
The 02 purchase is set to be not only the acquisitive
billionaire's biggest-ever foreign purchase, but also the largest
purchase overseas by an Asian firm since Japan's SoftBank Corp. 's
$21.6 billion buyout of Sprint Nextel Corp in Oct. 2012, according
to Dealogic.
For 86-year-old Mr. Li, who has spent at least $35 billion in
acquisitions since the 2008 financial crisis began throwing up
good-value assets overseas, the deal is the latest in his ramp-up
of European telecom assets.
In recent years, Mr. Li has bought Telefónica's Irish
subsidiary, O2 Ireland, for about EUR850 million ($1.1 billion) and
Orange Austria, the country's third-largest mobile operator for
$1.7 billion from France Telecom SA. Mr. Li already owns the Three
Mobile network in the U.K., Italy, Sweden, Denmark, Austria and
Ireland. Three is Britain's fourth-largest wireless carrier, while
O2 is the second biggest after EE.
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.
For buyers like cash-rich Mr. Li, consolidating telecom assets
adds steady cashflows to an empire anchored by volatile Hong Kong
real estate holdings. Hong Kong has one of the fastest growing
real-estate prices globally, but just 10 years ago was reeling from
the 1998 financial crisis.
"An acquisition of O2 by Hutchison would create the largest U.K.
mobile operator with 41% market share," UBS analyst Angus Chan
said. However, such a big acquisition could be a stretch for
Hutchison's balance sheet as the debt level of the new company, CK
Hutchison Holdings Ltd, is likely to increase after the split of
Mr. Li's holdings, the analyst said.
Hutchison Group Finance Director Frank Sixt said Friday the deal
would be funded by bank loans and investment from institutional
partners, including private-equity firms.
"We will ask some minority partners to join the investment," Mr.
Sixt said, adding the company intends to sell no more than a 30%
stake in the O2 deal to new partners.
Mr. Li earlier this month announced that he was stripping out
the real-estate assets held by his two main Hong Kong listed
companies: Cheung Kong Holdings Ltd and its 49.97%-owned Hutchison
Whampoa, whose assets, besides telecom, range from holdings in
ports around China, drugstores, as well as a stake in Canadian oil
company Husky Energy Inc. This week, Mr. Li's companies announced a
purchase of Dutch drugstore chain Dirx Drugstores as well as a GBP1
billion purchase of the U.K.'s Eversholt Rail Group.
The real-estate assets will be listed separately as Cheung Kong
Property Holdings Ltd while the remaining assets will be held in CK
Hutchison Holdings Ltd.
Mr. Li entered the mobile telecommunications market in 1983 and
now has 73 million active customers across the world.
Hutchison's Three Group Europe operations posted a 3% increase
in total revenue to HK$31 billion ($4 billion) for the six months
ended June 2014. Its core earnings, or earnings before interest,
tax, depreciation and amortization, rose 15% to HK$6.5 billion in
the same period. Mr. Li also has cellphone operations in his Hong
Kong under the Three brand.
Write to Yvonne Lee at yvonne.lee@wsj.com
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