Hutchison Whampoa (HWL), parent company of UK telecom operator Three, has entered into an agreement with Telefónica to buy its UK subsidiary, O2 UK, for £9.25 billion (US$13.795 billion) which will be paid at closing, and deferred upside interest sharing payments of up to a further £1 billion in the aggregate payable after the cumulative cash flow of the combined businesses of Three and O2 UK has reached an agreed threshold.  The timing and amounts of these payments will depend on the actual cash flow positions of the combined businesses.

 

The acquisition of O2 UK will create the number 1 mobile operator in the UK with almost 33 million customers and the deal is expected to generate significant synergy potential.  This combination will provide business with the scale and financial strength necessary to be an even more effective and aggressive competitor in the rapidly evolving UK telecommunications sector.  The combined business will have a much stronger ability to compete and businesses and consumers alike will benefit from the combined networks which will deliver better network coverage and quality of service.

 

Canning Fok, group managing director of HWL, said: “We are proud of the business built up by Three in the UK.  It is a market leader in mobile data and customers benefit from a superior high-speed mobile data network.  The signature of definitive agreements with Telefónica today is a major milestone.  Completion of the transaction is expected in 2016 as it is of course subject to conditions, including most importantly, satisfactory approvals from competition regulators.  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.  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.”

 

David Dyson, CEO of Three, added: “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.  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.”

 

The completion of this transaction remains subject to EU competition approval.