Hong Kong Tycoon Li set to buy O2 in £10bn deal

Spain's Telefonica are looking to sell O2. Picture: PA
Spain's Telefonica are looking to sell O2. Picture: PA
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ASIA’s wealthiest man is in talks to buy O2 in a potential £10 billion deal to ­create Britain’s biggest mobile phone operator, picking up the telecoms gauntlet thrown down by BT’s recent £12.5bn move on EE.

Li Ka-shing’s Hong Kong-based Hutchison Whampoa, which owns Britain’s Three telecoms business, could spark more industry consolidation, with the spotlight swinging to Voda­fone, due to outline its strategy at its quarterly trading update on 5 February.

Vodafone – the third biggest player in the UK mobile market – is seen as the most vulnerable to the two major telecoms mergers now in prospect. The group has already moved on cable operators in Spain and Germany in the past two years, and outlined plans to offer broadband services as the media/telecoms consolidation spree hots up.

Spain’s Telefonica plans to sell O2 to Hutchison Whampoa after BT decided against buying the business in favour of EE, the UK mobile networks joint venture between Deutsche Telekom’s T-Mobile and Orange group of France.

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Hutchison said yesterday it had been in exclusive talks with Telefonica regarding O2 for several weeks. Its offer comprises £9.25bn in cash, and up to another £1bn in deferred payments depending on how O2 and Three perform once they are combined.

Telefonica confirmed the talks, saying the sale was part of the strategic restructuring of the business and would “allow the company to strengthen its financial flexibility”.

EE’s share of the UK telecoms sector is estimated to be a market-leading 35.2 per cent. That is followed by O2 on 28.5 per cent – but the latter combined with Three’s 8.4 per cent share would see it climb to first place.

BT originally owned the O2 business when it was known as Cellnet, before demerging it in 2001 to exit the ­mobile telecoms market. Telefonica then snapped up the business for £17.7bn in 2005.

Under new chief executive Gavin Patterson, however, BT has decided it wants to become a player in mobile telecoms again, as well as becoming heavily involved in televised football as a rival to Sky.

Li Ka-shing, whose fortune is estimated by Forbes magazine at $35bn, operates an infrastructure-to-retail global conglomerate. Earlier this week his Cheung Kong infrastructure group bought British train rolling stock firm Eversholt for £2.5bn.

However, some analysts expressed caveats yesterday about his latest strategy. Mark Skilton, mobile industry expert at Warwick Business School, said: “This is a big gamble for Li Ka-shing as mobile operators are under attack from tech giants like Google, Amazon and Microsoft as the digital world continues to converge. Owning the infrastructure is no longer a sure way to make money.”

The magnate’s other UK investments include retailer Superdrug, Northumbrian Water, Southern Water, and Felixstowe port.

It is believed the 02 transaction will face scrutiny by the UK industry regulator, Ofcom, and possibly the Competition and Markets Authority.

However, the European Union looked at the last big merger in this ­sector, the combination of T-Mobile and Orange in the UK.