Hutchison Whampoa Says in Exclusive Talks to Buy U.K.'s O2 for Potentially More Than $15 Billion

By Shayndi Raice, Dana Mattioli and Christopher Bjork 

Li Ka-shing's Hutchison Whampoa said it has agreed to entered into exclusive talks to buy U.K. mobile-phone operator O2 for potentially more than GBP10 billion ($15 billion) in what would be the latest big consolidation move in that country's fast-changing wireless market.

The proposed deal includes a purchase price of GBP9.25 billion in cash plus up to GBP1 billion in deferred upside interest-sharing payments, Hutchison said in a statement Friday. The negotiations with O2 parent Telefónica SA of Spain would occur over a "period of several weeks, " the Hong Kong-based company said.

Hutchison owns Three, Britain's fourth-largest wireless carrier. Combining the two operators would create the largest mobile-phone company in the country by subscribers.

EE, currently the No. 1 player in the market, is in advanced talks to be bought by BT Group PLC, a tie-up that would get the British fixed-line giant back into wireless service and further shake-up the fast-moving European telecommunications sector.

A deal for O2 would be the latest in a recent string of in-country telecommunications mergers in Europe.

Facing stalling revenue in fiercely competitive and mature markets in the region and encouraged by strong equity prices, European telecom companies are seeking tie-ups that will enable them to get bigger and more efficient.

BT in mid-December said it had entered into exclusive talks to buy EE for GBP12.5 billion. BT said at the time that the talks were likely to continue for several weeks with EE owners Deutsche Telekom AG of Germany and France's Orange SA.

The announcement came after weeks of discussions BT had held with EE and O2, which was seen by many as a more likely partner in part because it has one owner, which could make for simpler negotiations.

In the wake of BT's decision to acquire EE, there has been widespread speculation that O2 would set its sights on a deal with Hutchison.

Mr. Li, 86, has spent $34 billion on acquisitions outside of Hong Kong since the 2008 financial crisis.

A retreat from the U.K. could allow Telefónica, one of Europe's most indebted firms, to significantly cut its borrowings, which now stand at more than EUR40 billion ($45 billion), and free up cash for investments in markets where it is considered to have a stronger competitive position, such as in Latin America, analysts said.

The Madrid telecommunications company has rejiggered its footprint in recent years, exiting countries including Ireland and the Czech Republic, while bulking up in Germany and Brazil.

Telefónica shares rose 10 cents, or less than 1%, to $14.56 in 4 p.m. New York trading on Thursday. Hutchison shares were up 55 cents at 98.30 Hong Kong dollars, also on Thursday.

An effort to combine the second- and fourth-largest players in the U.K. wireless market, could face tough antitrust scrutiny. The two together would have about 31 million customers.

Mr. Li, one of Asia's richest people, this month announced a reorganization of his empire to separate his Hong Kong property assets from his internationally focused conglomerate, which includes businesses such as operating ports and telecommunications.

The octogenarian controls two major companies listed in Hong Kong, Cheung Kong (Holdings) Ltd., his flagship holding company, and Hutchison Whampoa.

The real-estate assets of Cheung Kong and Hutchison are to be separated into a new company, also listed in Hong Kong.

The remaining assets of both companies, which include ports in 26 countries, mobile-phone operations and a stake in Canadian oil company Husky Energy Inc., will be listed separately.

Yvonne Lee and Simon Zekaria contributed to this article.

Write to Shayndi Raice at [e-mail], Dana Mattioli at [e-mail] and Christopher Bjork at [e-mail]

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