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The deal to merge O2, Britain's second-biggest mobile operator, with Hutchison Whampoa's Three is expected to be announced as early as Friday morning, said two people familiar with the situation.
The deal will add to a remarkable shopping spree in corporate Britain by Mr Li, one of Asia's wealthiest men, following his acquisition of the UK's Eversholt Rail Group for £1.1bn earlier this week.
Telefónica has been in talks to sell O2 to Hong Kong-based Hutchison Whampoa since similar discussions with BT ended before Christmas.
Executives at Telefónica and Hutchison Whampoa were working out the final details of the deal on Thursday night, one person added. The two groups will enter a period of exclusivity. Both parties declined to comment.
The merger would transform the British mobile market. Ofcom, the industry regulator, has long sought to maintain at least four competitors to keep prices low for consumers. Three, in particular, has been crucial in setting the lower end of pricing with cheap tariffs giving large bundles of data and calls.
Telefónica and Hutchison Whampoa are keen to present their deal to the competition authorities alongside the £12.5bn acquisition of EE by BT, one person said. This would help strengthen their argument that BT is already changing the boundaries of how telecoms should be judged alongside TV and broadband services.
The Spanish telecoms group is worried about being left with a declining mobile business in a market where rivals are adding other business lines such as fixed telecom, TV and broadband to their offers.
Telefónica also wants the cash to help reduce its high net debt levels and fund deal making in more core countries such as Brazil.
Hutchison Whampoa, meanwhile, has recently freed additional money to strike deals in Europe following a corporate reorganisation. Berenberg has estimated that Hutchison's restructuring could boost spending capacity to about to €9bn-€10bn.
The combination of O2 and Three would create the largest mobile operator in the UK with more than 31m subscribers — or about 41 per cent of the market, followed by EE with 32 per cent and Vodafone with 24 per cent.
However, the regulator is likely to push for the combined network to give up some of its spectrum, which is used to broadcast mobile signals. This would entail at least offering low-cost access to its networks for other competitors that use them such as TalkTalk, Tesco Mobile or Virgin Media.
Despite Ofcom's potential reservations, the decision would likely be taken in Brussels given the international ownership of the two groups.
Similar deals in countries such as Germany and Austria have been approved, albeit with some concessions to boost competition.
The British mobile user may be in for a shock, however, given clear evidence that fewer mobile companies would mean an almost immediate increase in prices. This would be a boost for all companies in the sector, including rivals such as Vodafone.
Berenberg calculates that synergies could be worth in the region of £2bn-£5bn in total based on 3 per cent to 6 per cent annual savings by merging operations. A sale at £10bn would reflect a multiple of 7-8 times earnings estimated for 2015, according to analysts, in line with the multiple BT is paying for EE.