Telefonica Confirms Exclusive Talks to Sell O2

By Christopher Bjork

MADRID--Spain's Telefonica SA (TEF) said Friday it has agreed to begin exclusive talks with Li Ka-shing's Hutchison Whampoa Ltd. (0013.HK) to sell its U.K. mobile-phone operator O2 for GBP10.25 billion ($15.4 billion), the latest big consolidation move in Britain's fast-changing wireless market.

Under the proposed deal, which had already been confirmed by Hutchison, the Hong Kong company would pay up to GBP9.25 billion in cash plus up to GBP1 billion in deferred upside interest-sharing payments to Telefonica. The negotiations with O2 parent Telefonica SA of Spain would occur over a "period of several weeks," both firms 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 (BT), 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.

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