Hutchison Whampoa and Telefónica confirm O2 UK sale talks

Following an early leak of the news both Hutchison Whampoa and Telefónica have confirmed that the two companies are in exclusive negotiations over the sale of UK operator O2, currently owned by Telefónica, to Hutchison, the owner of 3 UK.

This move would entail the fourth-largest UK operator by subscription acquiring the second largest. Ovum’s WCIS service estimates 3 had around 8.5 million UK subscribers by the end of 2014, while O2 had over 26 million. The combined operations would be the new UK market leader with around 35 million subscribers to EE’s 28 million.

The deal is valued at 10.25 billion, with a billion of it deferred until the aggregate cash flow of the combined companies reaches an undefined threshold, and is subject to the usual caveats. The combination seems no more damaging to competition than Orange + T-Mobile and certainly no worse than BT buying EE, so regulatory obstacles seem unlikely.

Telefónica was keen to put a positive spin on the disposal of one of its major assets. “This operation marks another step in Telefónica’s transformation process, initiated by the company to become a leading digital telco and accelerate sustainable long term growth while maintaining an attractive remuneration policy,” said the Telefónica announcement.

“Additionally, this announcement occurs at a decisive moment for Telefónica, following a period during which the company has been proactively managing its portfolio of assets, significantly reinforcing its position in key markets (consolidating Germany, acquiring GVT in Brazil -pending regulatory approvals- or undertaking a commercial and technological revolution in Spain)  and therefore increasing its potential for future growth.

“Finally, today’s agreement shows that Telefónica continues to lead the European consolidation process and it will allow the company to strengthen its financial flexibility.”