Li Ka-shing’s (李嘉誠) Hutchison Whampoa Ltd (和記黃埔) agreed to acquire Telefonica SA’s O2 unit in the UK, intensifying a push into businesses that provide stable income as the billionaire continues his efforts to remake the conglomerate.
The ￡10.25 billion (US$15.24 billion) price includes an initial sum of ￡9.25 billion in cash, with the remainder to be paid when certain financial targets are met, Telefonica said on Tuesday. O2 said regulatory approval could take a year, while Madrid-based Telefonica said it expects the transaction to be completed by June next year.
Hutchison shares rose in Hong Kong trading as the deal — reached after two months of exclusive talks — paves the way for merging its Three-branded business with O2 to create the UK’s largest wireless provider with more than 30 million subscribers.
It also advances Li’s focus on businesses that consumers rely on for basic services, insulating the retail-to-ports conglomerate’s income from economic cycles.
“This is a continuation of the company’s participation in businesses that relate to daily necessities,” said Ben Kwong, a director at brokerage KGI Asia Ltd in Hong Kong. “They will continue to acquire related business, and over time, when they mature, they may restructure or spin it off.”
Telecommunications was Hutchison’s second-biggest business by revenue last year, after retail chains and before ports, according to data compiled by Bloomberg.
The shares rose by 2.12 percent yesterday to HK$105.80 in Hong Kong trading as of 3:41pm. Hong Kong’s benchmark Hang Seng Index rose 0.43 percent.
The deal is to be funded by a ￡6 billion bridge facility that Hutchison 3G UK Investments has entered into with HSBC Holdings PLC and Hutchison’s own cash resources, the company said yesterday in a statement to the Hong Kong stock exchange.
The deal comes as Li, Hutchison’s 86-year-old chairman, is overhauling his business empire before handing the reins to his eldest son, Victor Li (李澤鉅).
Li Ka-shing is merging his two biggest companies and plans to spin off their real-estate assets into a separate unit later this year.
That has not stopped Hutchison from pursuing other deals as Europe’s telecommunications firms combine to gain more pricing power and amid sluggish economies that restrain the industry’s growth. In Italy, the company is in talks to merge its local operations with those of VimpelCom Ltd, according to people familiar with the matter.
Revenue from telecommunications services in Europe is expected to decline by 1.5 percent this year after falling 2.2 percent last year, according to researcher Ovum. Besides mergers and acquisitions, carriers are pushing for more lenient regulation and introducing faster networks, it added.
“They can drive a lot of synergies” with the agreement deal, said James Britton, an analyst at Nomura Holdings Inc in London. “Whether that really equips them to be fully competitive in a converged UK market remains to be seen.”
Hutchison’s agreement would reduce the number of UK wireless networks to three from four. Hutchison is betting on size to compete, taking on rivals that are adding services such as TV and Internet access to lure customers.
The deal “will create a business with unmatched scale and strength that will allow us to better compete against other operators in the marketplace,” Canning Fok (霍建寧), Hutchison’s group managing director, said in a statement.
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