Hutchison in talks to buy O2 UK for £10bn

Li Ka-shing’s Hutchison Whampoa has agreed to buy Telefonica’s British mobile unit O2 for up to £10.25bn (€13.7bn), 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 (as the company has done in Ireland) in 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 Li’s ports-to-property empire.

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.

The proposed O2 deal comes just two weeks after the Hong Kong tycoon undertook a major overhaul of his sprawling operations, which will be split into two listed firms, one focusing on property and the second on his other businesses including telecommunications, ports and infrastructure.

The revamp will boost Hutchison’s acquisition firepower by about $7bn as it spins off its property assets to Cheung Kong Holdings Ltd.

“The deal indicates that the group is continuously eyeing Europe to seek future growth,” Alex Wong, a director with Hong Kong-based Ample Finance Group said.

The marriage of Three Mobile and O2 UK 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 European Commission has taken a positive view of four- to-three consolidations of mobile in three cases now... and we believe that the precedents that they have set in those transactions will apply for this transaction,” Frank Sixt, Hutchison’s group finance director, told reporters.

The deal will mark Li’s biggest ever acquisition, overtaking Hutchison’s $7.5bn purchase of Britain’s Northumbrian Water Group in 2011, according to Thomson Reuters data.

Hutchison said in a statement that it had “agreed to enter into exclusive negotiations with Telefónica SA over a period of several weeks” for the potential acquisition.

It said it had agreed to pay an indicative price of £9.25bn, with another £1bn in “interest sharing payments” should the combined business reach certain cash flow targets.