Hutchison Whampoa is reported to be in talks with a handful of sovereign wealth funds (SWFs) to help finance its proposed takeover of Telefonica’s British unit O2.
The Hong Kong group is in exclusive talks with O2’s Spanish owner and has the outline…
Hutchison Whampoa is reported to be in talks with a handful of sovereign wealth funds (SWFs) to help finance its proposed takeover of Telefonica’s British unit O2.
The Hong Kong group is in exclusive talks with O2’s Spanish owner and has the outline of a £10.25bn (US$15.4bn) deal to merge the operator with its UK business, Three.
Hutchison is willing to relinquish up to 30% of the combined O2/Three operator to other investors. It is in discussions with China Investment Corporation, Singaporean investors Temasek and GIC, a Qatar government-backed fund, as well as several Canadian pension funds, according to a report in The Sunday Telegraph, which did not cite specific sources.
The merger is structured so that Hutchison would pay £9.25bn at closing, and a further £1bn once the combined business hits an undisclosed cash flow target, although this could change as it is yet to finalise an agreement with Telefonica.
Hutchison and Telefonica have several weeks to iron out the finer details of a transaction while the Hong Kong telco, owned by Asia’s richest man Li Ka-shing, undertakes due diligence.
Frank Sixt, Hutchison’s finance director, has said that £6bn of the consideration will be funded by a bank loan, and HSBC is reported to be leading that financing alongside other banks including BofA Merrill Lynch.
Telefonica is being advised by UBS, while Hutchison is reported to have mandated Moelis and HSBC.
Should final terms be agreed, the UK mobile market would move from four network operators to three.
The European Commission (EC) – which would review the deal – has set a precedent in approving such transactions elsewhere in Europe in the last two years, although the regulatory examination is likely to be long and testing.