The European Union Competition Commission (EC), the antitrust regulatory body of the European Union (EU) has rejected the UK competition authority’s plea to take over the evaluation of the Telefonica-Hutchison merger deal in the country, despite its claim of understanding the domestic market better.
Notably, in Mar 2015, Spanish telecom behemoth Telefonica SA TEF had decided to divest its U.K. wireless operations, which run under the O2 brand, to Hutchison Whampoa, currently operating under the 3 UK brand in the nation. In Sep 2015, Hutchison Whampoa informed the EC regarding its proposed takeover of O2.
In Oct 2015, the UK competition authority submitted a request asking the EC to refer all or part of the deal for assessment to it. In the meantime, on Oct 30, the EC opened an in-depth investigation into the proposed merger deal. The regulator has time until Apr 18, 2016 to take a final decision.
The total consideration of the merger is GBP 10.25 billion (approximately $15.25 billion). Per the deal, Hutchison will initially pay a total of GBP 9.25 billion (approximately $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. At present, O2 serves over 22 million customers. Post-merger, the combined entity, with a consolidated subscriber base of more than 30 million, will form the largest wireless operator in the U.K.
Telefonica has been seeking suitable options for 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 Group settled for EE, which is jointly controlled by Orange ORAN and Deutsche 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 Communications Plc. Moreover, cable MSO (multi service operators) Liberty Global Plc. LBTYA took over Virgin Media. Liberty Global has also decided to acquire the Caribbean cable TV operations of Cable and Wireless Communications.
Telefonica currently carries a Zacks Rank #3 (Hold).
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