​Telefonica sells O2 to Three for £10.25bn

Three UK will become the largest mobile operator if regulators approve its agreement to acquire O2 from Spanish operator Telefonica.

Spanish operator Telefonica has agreed to sell O2 for £10.25bn to Hutchison Whampoa, the owner of Three UK.

The deal will see Three become the UK's largest mobile operator with a share of 40 percent of mobile subscribers in the country - a total of 33 million customers.

Telefonica and Three's parent companies announced on Tuesday that they had settled the final terms for the acquisition after two months of exclusive negotiations.

Three UK's parent will make an initial £9.25bn payment and a deferred payment of £1bn once the merged Three UK and O2 businesses hit certain cashflow targets. Hutchison is funding the acquisition with a £6bn bridge facility.

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"The combination of Three UK and O2 UK will create a business with unmatched scale and strength that will allow us to better compete against other operators in the marketplace and will also enable us to provide even better service and innovation to UK customers in a market that will remain fully competitive," Canning Fok, group managing director of Hutchison, said.

"This very significant investment for Hutchison also reflects our continued confidence in the UK economy and its commitment to maintain and foster a dynamic telecommunications sector."

Hutchison expects the transaction to be cleared in 2016 and says the merger will deliver "significant synergy potential". The company made a similar move in Ireland in 2013, acquiring O2 Ireland and merging it with its local Three brand.

"The highly complementary network assets will deliver market leading coverage and capacity for talk, text and data, and will be well placed to satisfy rapidly growing demand," Three CEO David Dyson said.

The sale comes amid a period of upheaval in the UK's telecoms sector, and will bring the number of mobile network competitors from four down to three.

In February, BT finalised the purchase of EE from its joint owners Deutsche Telekom and Orange for £12.5bn. EE had 31 million customers and a 32 percent share of the UK market, followed by Vodafone with 24 percent.

Clearance of both mergers is still subject to regulatory approval from both UK and EC competition authorities.

BT had also been in the race to buy O2 in order to make its return to mobile services in the UK. BT spun off its former mobile unit BT Cellnet in 2001, which was later rebranded as mmO2 and in 2005 was acquired by Telefonica, which renamed the network simply O2.

Today, however, the company announced a new foray into mobile with the launch of a series of SIM-only deals. The 4G plans last 12 months and range in price from £5 for 500MB a month, unlimited texts, and 200 call minutes to £20 for 20GB of data, and unlimited calls and texts. Existing BT broadband customers are being offered discounts on the tariffs.

BT said at the time of the EE acquisition that it expects to achieve £1.6bn of "revenue synergies" by selling mobile contracts to broadband customers and broadband bundles to EE mobile subscribers. BT also expects to make savings by cutting duplicated operating costs.

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