According to a recent report of Financial Times, Spanish telecom behemoth Telefonica SA (TEF) is currently in talks with Hutchison Whampoa to merge their respective wireless services operations in the U.K. Telefonica operates in UK under O2 brand whereas Hutchison operates as 3 UK.
It was also reported that Telefonica intends to completely sell off O2 for a cash consideration of around $12 billion to $13.5 billion. However, neither of the entities has confirmed the news.
Telefonica has been seeking a suitable way of divesting its UK operations for quite some time now. Notably, UK telecom giant BT Group Plc. (BT) has been planning to re-enter the wireless segment and was eyeing incumbents like O2 and EE as possible takeover targets.
Finally, in Dec 2014, BT settled for EE, which is jointly controlled by Orange (ORAN) and Deutsch Telekom AG. Meanwhile, Hutchison has reached an agreement with Telefonica to acquire the latter’s mobile operations in Ireland.
Over the last couple of years, the UK telecom sector has been witnessing a wave of consolidation. Introduction of latest network technologies has significantly intensified competition in this market. In order to attain economies of scale to remain competitive, several telecom companies are looking for merger options to offer quad-play services of wireless, wireline, Internet and video services.
Wireless and fixed broadband markets in the UK witnessed maximum consolidation. Vodafone Group Plc. (VOD) acquired the fixed-broadband businesses of Cable and Wireless.
Moreover, cable MSO (multi-service operators) Liberty Global Plc. (LBTYA) atook over Virgin Media. Small-sized wireless operators such as Talk Talk and Sky are other potential acquisition candidates. Telefonica currently carries a Zacks Rank #4 (Sell).
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