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Hutchison to buy Telefonica UK unit for $15 billion

Chris Ratcliffe | Bloomberg | Getty Images

Li Ka-shing's Hutchison Whampoa is in talks to buy Telefonica's British mobile unit O2 in a deal valued at more than 10.25 billion pounds ($15.4 billion), the company said Friday, as Asia's richest man makes one of his biggest bets yet to revamp his European telecoms business.

The agreement is likely to be announced on Friday and will mark the latest move towards telecoms consolidation in Britain, where the market is split between four mobile network operators and four separately owned fixed-line and broadband providers.

Shares of Hutchison Whampoa jumped more than 4 percent after resuming trade on Friday.

In December, former state monopoly BT entered exclusive talks with the owners of EE, Britain's biggest mobile operator. Hutchison already operates the Three Mobile network in Britain, and buying second-ranked O2 will make it the biggest operator in the country.

The move is expected to be one of the biggest acquisitions by Hutchison in its efforts to improve the performance of its European telecommunications business.

Three Group Europe reported total revenue of HK$31 billion ($4 billion) for the six months ended June, 2014, a 3 percent rise from a year ago. Its core earnings, or EBITDA, rose 15 percent to HK$6.5 billion in the same period.

The proposed deal comes close on the heels of the biggest business restructuring undertaken by Li's empire earlier this month. Under the plan, the tycoon's businesses will be split into two listed companies, one focusing on property and the second housing telecoms, ports, infrastructure and others.

European drive

Hutchison entered mobile telecommunications in 1983 and first ventured into Europe in 2000 through the 3G brand. However, the company has struggled to grow its European business.

As a result, Hutchison is accelerating its European consolidation and analysts see more acquisitions ahead. In Ireland, Hutchison's investment is expected to reach 2 billion ($2.27 billion) over the next three years.

Last year, Hutchison completed the acquisition of Telefonica's Irish business in a bid to boost its market share, though it still trails behind the market leader Vodafone.

Three Group Europe operates businesses in Italy, Britain, Sweden, Denmark, Austria and Ireland. In Asia, Hutchison has mobile operations in Indonesia, Vietnam and Sri Lanka.

In 2013, Hutchison approached Telecom Italia with a proposal to merge their mobile businesses whereby Hutchison would have taken a near 30 percent stake in Italy's biggest phone operator. The proposal was rebuffed by Telecom Italia's core shareholders.

It then tried to merge its Italian unit Three Italia with Wind, a subsidiary of Russian telecoms group Vimpelcom, but talks have stalled over governance and other issues.

BT had preferred EE over O2, which was acquired by Spain's Telefonica in early 2006 and is the country's second-largest mobile operator with about 22 million subscribers.

Sources had told Reuters that Hutchison, whose Three is Britain's smallest mobile network, has been waiting in the wings to buy whichever group BT spurned.

Analysts have said other competitors, including Vodafone, Liberty Global, Sky and TalkTalk, may also have to review their strategy and consider potential moves.

Telefonica said in November the British market was a core one for the company, but it had set as higher priority on reducing its big debt pile and protecting a fat dividend.

It also needed fresh cash to consider potential acquisitions in Brazil, its biggest market along with its home country, where it is investing massively to build an optic fibre network.