Three owner in talks over £10bn deal to buy O2

Hutchison Whampoa, owner of mobile phone network Three, has entered into exclusive talks to buy rival O2 in a £10 billion deal that would create the UK’s largest operator.

Spain’s Telefonica is selling O2 to the Hong Kong group after BT spurned the chance to buy the business – which began life as part of the telecoms giant – in favour of EE.

Tycoon Li Ka-Shing’s Hutchison group said it had entered talks “over a period of several weeks” to buy O2 for £9.25bn in cash followed by deferred payments of up to £1 billion.

Telefonica said the deal marked another step in its transformation process, which it said would “allow the company to strengthen its financial flexibility”.

Industry figures from Espirito Santo show EE as currently the biggest of the mobile phone players with 35.2 per cent of the market, 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.

Hutchison said the transaction remained subject to due diligence over O2, agreement on terms and signing of agreements, and obtaining the required corporate and regulatory approvals.

The talks come a month after BT said it had entered exclusive talks over a £12.5bn deal to buy EE.