Telef'nica to buy O2
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Spanish telco wins long-rumoured takeover target.
31 October 2005 Spanish telecoms operator, Telefónica, has agreed to buy O2, valuing the UK mobile phone operator at £17.7 billion, in a strategic move to bolster its European presence.
The world's fifth-largest telecommunications company by market share, Telefónica executives said in a statement that the combination would provide enhanced scale, by entering two of Europe's largest markets - Germany and the UK.
César Alierta, chairman of Telefónica, said the integration of O2 "will enhance our growth profile, it will allow us to gain economies of scale, it will open the group to the two largest European markets with sizeable critical mass and it will balance our exposure across business and regions."
Speculation of a possible takeover bid has encircled O2 since it was spun out of UK telecoms giant BT in 2001. Reports emerged in August that a joint bid by Germany's Deutsche Telekom (DT), which owns T-Mobile, and Holland's KPN collapsed after the pair could not agree how to divide O2's assets. Although a counter bid remains possible, analysts doubt that Telefónica's offer - a 22% premium on O2's share price - will be beaten.
The Spanish operator has been exploring various expansion options, and in mid-October a merger proposal was reportedly rebuffed by KPN. With various acquisitions in the Spanish, Czech, Dutch, Italian and Austrian communications markets, the spate of acquisition activity in Europe is starting to resemble the consolidation commotion currently underway in the US.
Based in Slough, O2 has some 24.6 million mobile-phone customers in the UK, Ireland and Germany, which will augment Telefónica's mobile phone division, Telefónica Móviles SA, which has more than 90 million customers in 15 different countries. Currently, much of Telefónica's mobile phone revenue comes from Spain and Latin America.
Goldman Sachs Group and Citigroup are advising Telefónica in the O2 bid, which is still subject to regulatory approval. The new combined business will be led by current management, as well as by Sir David Arculus, chairman of O2, whilst CEO Peter Erskine, will join Telefónica's board of directors.
Erskine welcomed the deal as a gain for customers, investors and employees and said he did not expect many redundancies among O2's 15,000 staff as the companies' operations have little existing overlap. As such, while the bid is still subject to regulatory approval, observers note intervention is less likely than for other potential bidders.
