o2

Telefonica Agrees To Sell O2 To Hutchison Whampoa For 10.25 Billion Pounds

January 23, 2015 - Written By Justin Diaz

 

Reports are in that Hutchison Whampoa has reached an agreement to buy British carrier O2 from Telefonica, a Spanish group who currently owns O2 in the U.K. as well as businesses in other regions. Snatching up the company will not only grant Hutchison a second mobile operator within the U.K., but it will also net them another 22 million subscribers. O2 will be added to Hutchison’s portfolio alongside Three Mobile which it already operates, and grabbing all of O2’s customers will allow Hutchison to surpass the current number one mobile operator in the country, which at the moment is BT (British Telcom) who had recently purchased EE, the U.K.’s number one carrier.

O2 is the number two mobile carrier in the U.K. just under EE, so it’s no surprise that combining Three and O2 which are both large carriers would push Hutchison Whampoa Ltd to the top operator. The deal will cost Hutchison 10.25 billion pounds which is roughly about $15.4 billion USD. What’s interesting is that BT had the chance to pick up O2 but instead chose to go with EE. The total deal amounts to an immediate all-cash payout of 9.25 billion pounds with the other 1 billion pounds being paid after the revenues from the consolidated carriers reaches the profit targets set forth as part of the acquisition, which wasn’t made public.

According to reuters, Telefonica has agreed to the deal as it was looking for a way to allow more time to focus on its biggest markets within the mobile industry, which it finds in Germany, Spain, and Brazil. It should also allow for Telefonica to focus on where they feel they have the most potential for market growth which is in the Latin American markets where it also operates. This isn’t the first deal that happened between Hutchison and Telefonica, as Telefonica sold Hutchison their Irish business in 2014. The acquisition is slated to be funded with the combination of a bank loan totaling 6 billion pounds, and the rest of the cash payout will have to come from private equity partners which Hutchison is currently seeking, although it is already discussing these terms with certain potential partners. The incentive for the partners who will fork out the rest of the equity is a combined 30% stake in O2.