Hutchison Whampoa Ltd (和記黃埔) is exploring the purchase of Telefonica SA’s wireless unit O2 in the UK, as billionaire Li Ka-shing’s (李嘉誠) company weighs expansion in Europe, according to sources familiar with the matter.
Other options Hong Kong-based Hutchison is studying include merging its Italian mobile unit with a local competitor, the sources said, asking not to be identified because the deliberations are private. The UK plans are at an early stage and no deal is imminent, the sources said.
Hutchison, which owns the Three mobile network, could pay as much as ￡9 billion (US$13.63 billion) for O2 UK, the Sunday Times reported over the weekend.
The UK is primed for more deals after wireless-market leader EE Ltd began exclusive talks last month to be acquired by BT Group PLC, leaving smaller carriers looking for ways to compete.
O2 had also been in talks about a combination with BT, but was left out after BT chose EE.
“Hutchison’s Three is the smallest of all existing UK mobile operators, and it needs to build scale,” Geo Securities Ltd (智易東方證券) chief executive officer Francis Lun (藺常念) said. “It makes sense to acquire O2 as Telefonica, which is stuck with debts, is a willing seller.”
Li is consolidating his holdings, which range from Asian real estate to telecommunications businesses across Europe, and is making more acquisitions outside his home market.
Last year, Hutchison completed the takeover of Telefonica’s Irish unit for 850 million euros (US$980 million) to combine with Three Ireland.
The reorganization of his two main companies, Cheung Kong Holdings Ltd (長江實業) and Hutchison Whampoa Ltd, would provide Li greater flexibility to do deals in Europe, especially in the UK telecoms industry, according to Lun.
“The new structure will allow Li to utilize Cheung Kong’s strong cash position as Hutch was inhibited by a high gearing ratio in the past,” he said.
Telefonica has hired investment bank UBS Group AG to explore options for O2, people familiar with the matter have said.
The telecommunications company, which is looking for ways to exit the UK to help pay off debts, might also consider selling shares of O2 to the public, the Sunday Times report said.
Hutchison has hired boutique investment bank Moelis & Co to look for possible deals in the UK, the report said.
Europe generated half of Hutchison Whampoa’s revenue in the first half of last year, according to data compiled by Bloomberg. Its 3 Group Europe posted sales of HK$31.1 billion (US$4 billion), a 3 percent increase from a year earlier.
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