EU Sets Out Objections to Hutchison's $14 Billion Telefónica U.K. Deal

By Nick Kostov and Natalia Drozdiak 

BRUSSELS--The European Union has sent CK Hutchison Holdings Ltd. a statement setting out its objections over the company's planned $14 billion takeover of Telefonica SA's British cellphone operator O2, according to people familiar with the matter, on concerns the deal could lead to higher prices and less choice for U.K. consumers.

The European Commission, the bloc's top antitrust regulator, has said the sale of O2 to Hong Kong tycoon Li Ka-shing's conglomerate Hutchison would create the largest mobile-network operator in the U.K., potentially removing an important competitor.

The commission opened a full-blown investigation into the telecoms deal in October.

O2 is Britain's second-largest mobile operator, and Hutchison already owns the fourth-largest operator, Three U.K.

In a statement, Hutchison's managing director Canning Fok on Thursday defended the deal, saying it would be willing to sell fractional ownership stakes in its U.K. mobile network to competitors.

Mr. Fok also said the consolidation of the two companies would lead to a five-year price freeze for consumers and that the merged entity would invest GBP5 billion in the business during that time. Telefónica also said in November that it expected the commission to approve the deal.

It isn't uncommon for the commission to send companies a statement of objections in big merger cases, especially if the acquiring firm hasn't managed to assuage the regulator's concerns since opening the full-blown investigation into the deal.

The statement of objections outlines the competition concerns in greater detail and essentially kick-starts a period of negotiations between the EU and the acquiring company over what remedies the firm will offer to help win the deal's approval. Shedding assets and giving away access to infrastructure are typical in telecommunications mergers.

A number of groups are already taking a keen interest in possible buying opportunities among the likely remedies arising from the deal. French telecoms billionaire Xavier Niel, who controls French telecoms group Iliad SA, is looking into whether he can use them to enter the U.K. telecoms market, people familiar with the matter said. Virgin Media, controlled by John Malone's Liberty Global PLC, is also considering opportunities to beef up its mobile offering in the U.K.

Europe's antitrust chief Margrethe Vestager has taken a tough stance against telecoms mergers in the region during her tenure, particularly in cases where mobile-phone mergers reduce the number of operators in a given country from four to three.

Telecoms operators say they are looking to consolidate with rivals in the same country to afford rising costs and boost their investment in networks as revenues shrink. But Ms. Vestager has previously dismissed those claims, saying excessive consolidation can lead to larger bills for customers and zaps incentives to innovate.

The EU on Thursday approved Liberty Global's EUR1.3 billion euros ($1.45 billion) purchase of Belgian mobile-phone operator BASE Company NV. But the deal received a stamp of approval largely because the parties are selling BASE's share in the mobile virtual network operator Mobile Vikings to Belgian broadcaster Medialaan, ensuring that a new operator is entering the market.

The commission's current deadline for reviewing the merger is set for April 22, though it could still be extended. If the EU fails to reach an agreement with the parties on how to bring the acquisition into line with EU competition rules, the commission can decide to block the merger.

Simon Zekaria contributed to this article.

Write to Nick Kostov at [e-mail] and Natalia Drozdiak at [e-mail]

(END) Dow Jones Newswires

February 05, 2016 12:29 ET (17:29 GMT)

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