O2 agrees to Telefónica takeover

Update: The mobile operator is recommending shareholders accept an offer worth a total of £17.7bn from the Spanish telco

O2, one of Britain's last two independent mobile operators, is to be sold to Spain's Telefónica in a deal reportedly worth £17.7 bn.

The deal was made public by O2's chief executive, Peter Erskine, on this morning's Today programme on BBC Radio 4. According to Erskine, the company has recommended that shareholders accept the all-cash offer of 200p per share, which represents a 25 percent premium on the current share price.

O2 was created in 2001 when BT spun off its mobile arm, then called BT Cellnet. Sir David Arculus, chairman of O2, said the offer from Telefónica "reflects the value created since demerger [sic] and the potential of the O2 Group going forward.

"Our successful brand will be retained and extended, bringing benefits to both customers and employees as part of an enlarged, strengthened group," Arculus added.

Marta Muñoz Méndez-Villamil, senior analyst at Ovum, believes the deal could benefit both companies.

"For Telefonica, it allows it to enter two of the largest European markets in terms of subscribers and revenues, as well as two of the most advanced and highly competitive markets: UK and Germany. For O2, it was something bound to happen. They were operating in a market with large players like Vodafone, France Telecom and Deutsche Telekom - they had become too small a fish, and sooner or later were to be eaten. The deal opens the door or O2 to a highly lucrative market, Spain; and a market with tremendous growth potential, Latin America,"said Méndez-Villamil in a statement.