Tycoon Li Ka-shing's Hutchison Whampoa To Buy O2 UK In $15.2 Bln Deal

(RTTNews) - Hong Kong billionaire Li Ka-shing's Hutchison Whampoa Ltd. (HUWHY, HUWHF) agreed Wednesday to acquire Spanish telecom operator Telefonica S.A.'s (TEF, TDE.L) UK mobile business, Telefonica UK or O2 UK, for about 10.25 billion British pounds or $15.24 billion, including deferred upside interest sharing payments of up to 1 billion pounds. The deal is expected to close by the end of June 2016.

The deal will see the combining of Britain's second-largest wireless provider O2 with Britain's fourth-largest wireless carrier 3 UK, which is owned by Hutchison. Telefonica owns O2, which it acquired in early 2006. The deal will create the no. 1 mobile operator in the UK with almost 33 million customers on a combined basis.

Following completion, the businesses of the O2 UK Group and of Hutchison 3G UK Ltd., the holding company of the 3 UK business, will be consolidated under a merged entity. The deal is expected to provide significant synergy potential through the combination of networks and cost bases.

The additional 1 billion pounds will be paid once the cumulative cash flow of the combined company in the UK has reached an agreed threshold.

Hutchison Whampoa said it will fund the deal with a 6 billion pound bridge facility entered into with HSBC Bank plc and its own cash resources.

The deal was agreed upon following a two-month period of due diligence and exclusive discussions between the two companies. Telefonica had entered into an exclusivity agreement with Hutchison Whampoa on January 23 for the sale of its UK mobile business.

The closure of the deal is subject to shareholder and regulatory approvals, but would bring together two respected mobile businesses in the UK. The regulatory approvals are expected to take up to a year.

The companies have obtained written shareholders' approval from the CKH Subsidiaries and LKS Castle Trustee, who together constitute a closely allied group of shareholders who together hold more than 50 percent of the shares in the company.

The completion of the deal is also subject to obtaining of waivers to certain change of control provisions, which must be satisfied by no later than June 30, 2016, or 30 September 30, 2016 in specified circumstances.

The move will be the latest in a wave of consolidation sweeping through the European telecoms industry. Mobile and fixed-line operators are scrambling to join forces as bundled packages of television, broadband and calls have become popular with consumers.

The combined entity will become the largest wireless carrier in the U.K. based on number of subscribers, topping the current market leader EE Ltd., which was acquired by UK's biggest fixed-line operator BT Group plc (BT_A.L, BT) in early February. EE was jointly owned by Germany's Deutsche Telekom AG (DTEGY) and French telecom giant Orange SA (ORAN).

Telefonica had hired investment bank UBS AG to explore options for O2, while Hutchison hired Moelis & Co to look for possible deals in the U.K.

Despite saying in November that the British market was a core one for the company, Telefonica was eager to close the deal and use the proceeds to reduce its large debt pile. It is also looking to enlarge its presence in more core countries such as Brazil through acquisitions.

TEF closed Tuesday's regular trading session at $14.84, up $0.10 or 0.68% on a volume of 2.19 million shares.