Three U.K. owner Hutchison Whampoa has confirmed that it has entered into exclusive negotiations over the takeover of rival carrier O2 for £10 billion (approx. $15 billion). The deal will skyrocket Three from the U.K.’s smallest operator to its largest.
A statement issued by Hutchison Whampoa this morning, following earlier reports on the deal, reads:
Hutchison Whampoa Limited (HWL), parent company of UK telecom operator Three UK, announced that it has entered into exclusive negotiations with Telefónica, S.A. over a period of several weeks for the potential acquisition of Telefónica, S.A.’s UK subsidiary, O2 UK, for an indicative price in cash of £9.25 billion which would be paid at closing, and deferred upside interest sharing payments of up to a further £1 billion in the aggregate payable after the cumulative cash flow of the combined businesses of Hutchison 3G UK Limited and O2 UK has reached an agreed threshold.
If the takeover goes ahead, Hong Kong tycoon Li Ka-shing, who owns Hutchison Whampoa, would become one of the biggest foreign investors in the U.K. Li already owns O2’s Irish arm, as well as other U.K.-based companies, including high-street chain Superdrug.
Telefonica purchased O2 back in 2006 for £18 billion (approx. $30 billion), but the deal included not only the U.K. network, but also O2 businesses in Germany and the Czech Republic. The Spanish firm had discussed plans to sell O2 U.K. to British Telecom earlier this year, but BT later sign a preliminary agreement to acquire EE instead.
Experts say that Three’s purchase of O2 could result in higher prices as the number of major U.K. networks drops from four to three. Three has long been competing with larger rivals by undercutting their prices and offering incentives like unlimited data and 4G LTE at no extra cost, but it may no longer see a need to do that as the country’s largest operator.