Hutchison Whampoa has signed a binding agreement with Spain’s Telefonica to acquire its UK mobile division, O2, for £10.3bn (US$15.3bn) and combine it with its own British operator, Three.
Having concluded due diligence after entering exclusive…
Hutchison Whampoa has signed a binding agreement with Spain’s Telefonica to acquire its UK mobile division, O2, for £10.3bn (US$15.3bn) and combine it with its own British operator, Three.
Having concluded due diligence after entering exclusive talks two months ago, Hutchison will pay an initial £9.25bn at closing, and a further £1bn providing the cash flow of the combined Three-O2 reaches a certain threshold.
The Hong Kong group will fund the deal with a £6bn (US$9bn) bridge facility signed with HSBC, to be refinanced further down the line, and using its own cash resources.
Telefonica will use part of the proceeds to cut its leverage ratio of net debt/OIBDA to less than 2.35x.
Hutchison said the tie-up will create the largest mobile operator in the UK with almost 33 million customers.
Hutchison group managing director Canning Fok said in a statement: “Completion of the transaction is expected in 2016 as it is of course subject to conditions, including most importantly, satisfactory approvals from competition regulators.”
In a separate statement, Telefonica said the agreement required regulatory approval by 30 June 2016, but noted that in specific circumstances set out in the share purchase agreement this may be extended to 30 September 2016.
Given the size of the deal and the Europe-wide dimension – Hutchison owns telecoms operators in six EU markets – the European Commission is expected to review it. British regulator the Competition and Markets Authority is reported to be lobbying the EC to allow it to review the deal but there is no expectation or recent precedent to suggest Brussels will relinquish the case.
TelecomFinance understands Hutchison is likely to notify the EC in July for a Phase I review.
All three previous EC merger reviews involving four-to-three mobile consolidation – in Austria, Ireland and Germany – have gone to Phase II.
Neither O2 nor Three have commented yet on their network sharing agreements. Three shares network infrastructure with EE, itself in the process of being bought by BT, while O2 shares with Vodafone. Unravelling the agreements would be a time-consuming and costly proces, given the pacts are understood to include break fees, that could eat into synergies.
TelecomFinance understands that no decision has been made on the network sharing agreements and that the companies are waiting to see how the EC regulatory review pans out before taking a final decision.
HSBC and Moelis are understood to be advising Hutchison and Telefonica is working with UBS.
