Three UK set to purchase O2 network for £10 billion

Reports had been circulating in the past few days that Three UK was in the processes of making a bid to purchase rival network O2 from Telefonica. Today, Three UK’s parent company, Hutchison Whampoa Limited, has confirmed that is has entered into exclusive negotiations to purchase the network.

The deal is set to cost a total of £10.25 billion, £9.25 billion which would be paid at closing and a further £1 billion to be paid after the deal has completed. Of course, this potential agreement still has to pass through corporate and regulatory approvals, so the negotiations may not necessarily end up in a final deal.

Three UK, announced that it has entered into exclusive negotiations with Telefónica, S.A. over a period of several weeks for the potential acquisition of Telefónica, S.A.’s UK subsidiary, O2 UK, for an indicative price in cash of £9.25 billion which would 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 Hutchison 3G UK Limited and O2 UK has reached an agreed threshold.

O2, Vodafone, EE, and Three make up the UK’s dominant players in the mobile market, so the purchase of O2 would go a long way to turning Hutchison Whampoa into a controlling market player. The combined carrier’s customer based would grow from Three’s 7.5 million customers to 31.5 million with the addition of O2, placing it ahead of both EE and Vodafone. As this acquisition would reduce the UK’s major operators from four to three, it is likely to attract the attention of competition regulators in both the UK and EU.

Telefonica appears to have been trying to sell off O2 for a little while. A deal with British Telecom fell through late last year and Sky was also reportedly interested in the company. BT now looks to be interested in acquiring EE instead, which is the leading 4G network provider in the UK.

If this purchase goes through, the UK mobile market will be looking at a major carrier shake-up.