Spanish telecom operator Telefonica S.A. (TEF,TDE.L) said Friday that it has entered into an exclusivity agreement with Hong Kong billionaire Li Ka-shing's Hutchison Whampoa Ltd. (HUWHY, HUWHF) for the sale of its UK mobile business, Telefonica UK or O2, for 10.25 billion pounds in cash or about 13.5 billion euros.
The deal includes an initial amount of 9.25 billion pounds or about 12.2 billion euros which would be paid at closing of the transaction and an additional deferred payment of 1.0 billion pounds or about 1.3 billion euros.
According to the company, the exclusivity period will last several weeks, allowing Telefónica and Hutchison to negotiate definitive agreements, while the necessary due diligence process on O2 UK is completed.
Financial Times and Sunday Times had previously reported about the impending deal. As per reports, the deal will see the combining of Britain's second-largest wireless provider O2 with Britain's fourth-largest wireless carrier Three UK, which has about 27 million subscribers and is owned by Hutchison. The combined entity would become the largest wireless carrier in the U.K. based on number of subscribers.
O2, which has about 22 million subscribers, was acquired by Spain's Telefonica in early 2006.
Telefonica now said the move marks a key milestone in its process of strategic transformation to accelerate sustainable long term growth.
The move will be the latest in a wave of consolidation sweeping through the European telecoms industry. The current market leader EE Ltd. is in talks to be acquired by UK's biggest fixed-line operator BT Group plc (BT_A.L, BT). EE is jointly owned by Germany's Deutsche Telekom AG (DTEGY) and French telecom giant Orange SA (ORAN).
According to the Times, Telefonica has hired investment bank UBS AG to explore options for O2, while Hutchison has hired Moelis & Co to look for possible deals in the U.K.
In Spain, Telefonica shares are currently trading at 13.14 euros, up 2.98 percent.
Hutchison shares settled at HK$101.30 today, up 3.05 percent.
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