Telefonica is in talks with Hutchison Whampoa about merging their subsidiaries Telefonica UK (O2) and 3 UK, a person with knowledge of the situation told the Financial Times. Telefonica has been examining various options for the future of O2 since summer 2014, and was in talks to acquire EE, which is now in due diligence to be bought by BT.
Other potential partners for Hutchison include TalkTalk and Sky, the person said. Telefonica also has the option of floating O2 in the UK. Telefonica has been advised by UBS since last autumn. He added that there was no urgency to strike a deal as BT’s acquisition of EE is not likely to be completed until 2016. According to analysts, Telefonica is likely to want over GBP 8 billion for its UK business and is said to prefer cash rather than shares in a merged group given its need to cut its debt.
Hutchison Whampoa has been strengthening its European operations and has reached an agreement to buy Telefonica’s business in Ireland and was in talks to merge its Italian operations with those of VimpelCom. Telefonica would not comment on the matter and Hutchison Whampoa was not available to comment.