Hutchison Whampoa is holding talks with Telefonica with a view to merging the two companies’ mobile businesses in the U.K., according to U.K. press reports this weekend.
The Hong Kong-based firm could broker a deal worth as much as £9 billion (€11.8 billion) for O2, The Sunday Times reported, citing unnamed sources.
The sources added that talks are at an early stage and there is no certainty that they will result in an agreement.
Talks between Hutch and Telefonica were widely expected after BT entered exclusive negotiations to acquire EE for £12.5 billion in mid-December. BT also considered a move for O2 before settling on EE, and Reuters claimed that Hutch would approach whichever company was rejected by the U.K. incumbent.
Meanwhile, Telefonica is known to be keen to reduce its debt burden, and it has done business with Hutch before, having sold O2 Ireland for €850 million last year.
The U.K. is following the mobile consolidation pattern that has been seen across Europe for the past couple of years. A tie-up between EE and BT will create a stronger, multi-play competitor, and a subsequent merger between O2 and 3UK would reduce the number of mobile network operators in the market to three from four.
Ofcom will doubtless have something to say about any such move, but if other markets are anything to go by, the deal will get the thumbs-up…in all likelihood after a lengthy period of analysis by the regulator, U.K. competition bodies and the European Commission.
Selling O2 is not Telefonica’s only option though. The Sunday Times’ sources noted that the Spanish incumbent could seek to monetise its U.K. asset through a float, but would likely raise less than in an outright sale. The paper puts the value of O2’s 23 million-strong U.K. subscriber base at £8 billion-£9 billion.
