Three Owner Finalises O2 Takeover Terms, Merger Could Happen In 2016

Three and O2 set to combine to create the UK’s largest mobile operator

Hutchison Whampoa, parent company of operator Three, has finalised its £10.25bn takeover of O2, creating the UK’s largest network with 33 million customers.

The fee had been agreed earlier this year and Hutchison entered into exclusive negotiation with Telefonica, which bought O2 from BT in 2005, in January.

Now that due diligence has been completed, the takeover will now be scrutinised by European Commission antitrust authorities and it is expected that the transaction will be completed next year.

Deal confirmation

o2faunadlarge“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,” said Canning Fok, group managing director of Hutchison Whampoa. “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.”

Telefonica had been a willing seller of its UK business as it had no intention of participating in the ongoing consolidation of the UK communications market.

BT, Sky, Vodafone, TalkTalk, EE and others have moved to offer various packages of mobile, landline, broadband and television services in order to increase revenue and encourage customer loyalty. Indeed, BT considered an offer for O2, its former subsidiary, before opting to buy EE.

Combined strength

Hutchison and Three say the merger will allow the new combined operator to compete more effectively in a crowded marketplace.

“Three’s leadership in mobile data together with O2’s strength on network coverage is a great combination that will bring very real benefits to businesses and consumers throughout the UK,” said Three CEO Dave Dyson. “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.”

It is unclear how much concern the EU will have about the deal, but it may believe the merger could impact competition.

Three, currently the UK’s smallest operator, has a history of disrupting the market with low prices, roaming offers and 4G at no extra cost. Should it become the largest operator, the need for such aggressive tactics would be less obvious.

However the European Commission has given its blessing to mergers in other countries in recent times. Indeed, Hutchison is in the process of combining Three and O2 in Ireland and it has been suggested the EC could focus on spectrum holdings and Mobile Virtual Network Operator (MVNO) access.

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