Telefónica has sold its Irish division, O2 Ireland, to Hutchison Whampoa, the Hong Kong company that owns Three.
The deal values O2 Ireland at €850 million. It includes €780 million in cash and a further €70 million payment if O2 Ireland meets certain performance targets.
O2 Ireland is the country's second largest mobile operator, behind Vodafone which controls 39.4% of the market. The combination of O2 Ireland and Three will have 37.5% share of the market.
The deal continues Hutchison's aggressive expansion in the European market. Last year, the company acquired Orange's Austrian division. It was recently in talks with Telecom Italia over a potential merger, although those talks have reportedly broken down.
Last year, Three Ireland bid €2 billion acquire Irish telco giant Eircom Group, but its bid was rejected on legal grounds.
For Telefonica's part, the sale was evidently prompted by its goal of cutting its €68 billion debts by 30% this year. The company, currently Europe's largest telecommunications operator, is expected to sell off more assets to meet that target.
Telefónica acquired O2 Ireland's parent company, O2, in 2005 for £18 billion.