Hutchison Whampoa and Telefonica late on Tuesday finalised their £10.25 billion agreement to merge their U.K. businesses, creating the country’s largest mobile operator by subscribers.
The companies have been holding exclusive talks about combining 3UK and O2 since January. The headline terms of the transaction remain unchanged: Hutchison will pay Telefonica the initial sum of £9.25 billion (€14 billion), followed by another £1 billion once the cumulative cash flow of the merged entity reaches an agreed threshold.
Once the dust settles, the U.K. mobile market will have a new leader with 33 million customers. Current market leader EE has around 25 million. The merger is also set to consign Vodafone to last place in its home market.
"The combination of 3UK and O2 UK will create a business with unmatched scale and strength that will allow us to better compete against other operators in the marketplace and will also enable us to provide even better service and innovation to U.K. customers," said Canning Fok, managing director of Hutchison Whampoa, in a statement.
"3’s leadership in mobile data together with O2’s strength on network coverage is a great combination that will bring very real benefits to businesses and consumers throughout the U.K.," added 3UK CEO Dave Dyson. "The highly complementary network assets will deliver market leading coverage and capacity for talk, text and data and will be well placed to satisfy rapidly growing demand."
Hutch and Telefonica aim to complete the deal by mid-2016, leaving time for a lengthy review by competition watchdogs.
Indeed, the transaction will reduce the number of players in the U.K. mobile market to three from four, which will draw the attention of the European Commission. While Brussels has softened its stance slightly on consolidation in the continent’s mobile sector – sanctioning deals in Austria, Germany and Ireland – their approval required the players involved to divest spectrum and provide wholesale access to their networks on favourable terms.
One or both of Telefonica and Hutchison were involved in the consolidation that took place in those aforementioned markets. In early 2013, Hutchison Austria completed its acquisition of local rival Orange, while Telefonica exited Ireland in July last year by selling its O2 unit to Hutchison, and bulked up in Germany by acquiring E-Plus.
The U.K. market "will remain fully competitive," Fok insisted on Tuesday.
