Three in talks to buy O2 for £10.25bn

Hutchison, owner of UK mobile network Three, is in exclusive talks to acquire rival O2 from its Spanish parent Telefonica, in a deal which would make it the country's largest mobile operator.

Hutchison Whampoa, the owner of the Three mobile network in the UK, is on course to acquire rival O2, forming one of Europe's largest telcos.

Hutchison Whampoa and O2's owner, Spanish telco Telefonica, today announced they are in "exclusive negotiations" over the sale of O2 for £10.25bn.

The agreement would include an initial £9.25bn to be paid at closing of the transaction and an additional deferred payment of £1bn. The pair have agreed to a several week period of exclusivity.

An announcement from the two carriers was expected after reports on Sunday that a deal was in the offing.

The talks follow an approach by BT in December to Deutsche Telekom and Orange to buy their UK mobile business EE for £12.5bn. The former state monopoly was also in talks to acquire O2, which was born out of the 2002 spinoff of BT's mobile unit, Cellnet. Telefonica acquired the company that later became O2 in 2006 for around £18bn. Hutchison was reported to be interested in acquiring whichever operator BT turned down.

A merger would move Three from the smallest of the UK's main network operators to the its largest, adding O2's 22 million subscribers to Three's existing 7.5 million.

Should the deal clear regulatory hurdles, it will reduce the number of operators in the UK to four key mobile network players and four fixed line providers.

According to The Guardian, Three will have a 41 percent market share of the UK's mobile subscribers, followed by EE's 32 percent, leaving Vodafone with 24 percent.

Meanwhile, should BT go on to acquire EE, it would set the company up to provide quad-play services, enabling it offer customers packages including broadband, fixed line telephony, mobile and pay TV.

Reuters reported that Hutchison's offer values O2 at 7.9 times EBITDA, while BT's planned takeover of EE valued it at roughly eight times.

The deal may draw the attention of regulators at the European level, which have cleared similar transactions in the past year with certain restrictions.

Telefonica's acquisition of KPN's German mobile network, E-Plus gained regulatory approval from the European Commission last September, however it was required to sell a third of its network's capacity to rivals.

Similar demands were made to Hutchison after it acquired O2 Ireland from Telefonica, reducing the number of operators there from four to three.

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