Li Ka-shing's Hutchison Whampoa has agreed to buy Telefonica's British mobile unit O2 for up to £10.25 billion, as Asia's richest man makes his boldest bet yet to revamp his European telecoms business.
Hutchison already operates the Three Mobile network in Britain, and buying second-ranked O2 from the Spanish group in Mr Li's biggest ever takeover will make it the top mobile operator in the country.
The company made its first forays into European telecoms markets in 2000, but returns from the business have lagged other parts of Mr Li’s ports-to-property empire.
Mr Li and his chief dealmaker Canning Fok have doubled down in response, sinking more money into Europe as they look to snap up businesses from operators who have been battered by the continent's debt crisis.
Last year, Hutchison bought Telefonica's Irish business in a bid to boost its market share, though it still trails behind the market leader Vodafone.
The proposed O2 deal comes just two weeks after the Hong Kong tycoon undertook a major overhaul of his businesses, which will be split into two listed companies, one focusing on property and the second on telecommunications, ports, infrastructure and others.
The revamp will boost Hutchison's acquisition firepower by about $7 billion as it spins off its property assets to Cheung Kong Holdings.
The marriage of Three Mobile and O2 would mark the latest move towards telecoms consolidation in Britain, where the market is split between four mobile network operators and four separately owned fixed-line and broadband providers.
While the deal will attract scrutiny from competition authorities, European regulators have allowed the number of telecoms operators in countries including Austria and Ireland to shrink from four to three through mergers and acquisitions.
The deal will mark Mr 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 shares were briefly suspended ahead of the announcement, and jumped more than 4 per cent when trading resumed, outpacing a 1.2 per cent rise in Hong Kong's benchmark Hang Seng share index.
The company said in a statement that it had: "agreed to enter into exclusive negotiations with Telefonica over a period of several weeks" for the potential acquisition.
It said it had agreed to pay an indicative price of £9.25 billion, with another £1 billion in “interest sharing payments” should the combined business reach certain cash flow targets.
Minority partners
Hutchison will fund the deal with a £6 billion bank loan. The company is in talks with private equity firms and others to bring in minority partners, who would be offered not more than a 30 percent stake, Sixt added.
In December, former state monopoly BT entered exclusive talks with the owners of EE, Britain’s biggest mobile operator.
BT had preferred EE over O2, which was acquired by Telefonica in early 2006 and has about 22 million subscribers.
Reuters reported in November that Hutchison, whose Three is Britain’s smallest mobile network, was waiting in the wings to buy whichever group BT spurned.
Three Group Europe reported total revenue of HK$31 billion ($4 billion) for the six months ended June, 2014, a 3 percent rise from a year ago. Its core earnings, or EBITDA, rose 15 percent to HK$6.5 billion in the same period.
It operates businesses in Italy, Britain, Sweden, Denmark, Austria and Ireland. In Asia, Hutchison has mobile operations in Indonesia, Vietnam and Sri Lanka.
Telefonica said in November the British market was a core one for the company, but it had set as higher priority on reducing its big debt pile and protecting a fat dividend.
