Spanish telecom behemoth Telefonica SA TEF has decided to divest its U.K. wireless operations, which run under the O2 brand, to Hutchison Whampoa. Notably, Hutchison currently operates under the 3 UK brand in the nation. At present, O2 serves over 22 million customers. Together the joint entity will have a consolidated subscriber base of more than 30 million, which will form the largest wireless operator in the U.K.
The total consideration of the deal stands at GBP 10.25 billion (approximately $15.25 billion). Hutchison will initially pay a total of GBP 9.25 billion (around $13.75 billion) with an additional deferred payment of GBP 1 billion (about $1.5 billion). The deal is expected to be completed by Jun 2016, subject to customary regulatory approval. Earlier, Hutchison had reached an agreement with Telefonica to acquire the latter’s mobile operations in Ireland.
Telefonica has been seeking a suitable way of divesting its UK operations for quite some time now. Meanwhile, UK telecom giant BT Group 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.
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 in a bid to offer quad-play services of wireless, wireline, Internet and video services.
The wireless and fixed broadband markets in the UK witnessed a series of consolidations. Vodafone Group Plc. VOD acquired the fixed-broadband businesses of Cable and Wireless. Moreover, cable MSO (multi-service operators) Liberty Global Plc LBTYA took over Virgin Media.
Small-sized wireless operators such as Talk Talk and Sky are other potential acquisition candidates. Telefonica currently carries a Zacks Rank #5 (Strong Sell).
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