Hutchison Said Close to Buying Telefonica’s O2 Ireland

Hutchison Whampoa Ltd. (13), controlled by Hong Kong billionaire Li Ka-shing, is in advanced talks to buy Telefonica SA (TEF)’s Irish unit, four people with knowledge of the negotiations said.

An agreement may be struck before rival bidders are even due to pitch offers on July 5, according to three of the people, who asked not to be named as the talks are private. Telefonica is eager to secure an accord before it publishes interim results at the end of next month, the people said.

Telefonica, Europe’s most indebted telephone company, may raise more than 700 million euros ($925 million) from the sale of its O2 Ireland unit, two people with knowledge of the matter said June 10. The Madrid-based company has said it wants to cut its net debt to less than 47 billion euros by year end from about 51.2 billion euros.

“This is a sensible step toward the company’s goal to cut debt,” said Borja Mijangos, an analyst at Interdin Bolsa in Madrid. “Telefonica will likely sell more assets this year to soothe investors and be in a stronger position for potential M&A activity.”

European telecommunications firms are seeking to consolidate as growth in mobile-data usage slows and heavy regulation slices profits. If Hutchison and Telefonica’s local units merge, Ireland would join Austria and the U.K. among countries that have recently seen the number of mobile operators shrink.

Photographer: Aidan Crawley/Bloomberg

The Irish flag, flies outside an O2 Mobile Phone Store, part of Telefonica SA, on Grafton Street in Dublin. Close

The Irish flag, flies outside an O2 Mobile Phone Store, part of Telefonica SA, on... Read More

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Photographer: Aidan Crawley/Bloomberg

The Irish flag, flies outside an O2 Mobile Phone Store, part of Telefonica SA, on Grafton Street in Dublin.

Failed Bid

Telefonica shares fell 0.1 percent to 9.80 euros in Madrid after rising as high as 9.97 euros.

Hutchison’s Three Ireland unit, the third-largest mobile phone operator in the country, failed in its 2 billion-euro bid last year for Eircom Group, Ireland’s largest phone company, when the latter was under court protection from its creditors. Some 1.8 billion euros, or 40 percent, of Eircom’s debt was written off during the process.

Three Ireland declined to comment in an e-mailed response to questions about any discussions. Telefonica also declined to comment on any talks. The Spanish company is being advised by Bank of America Corp. and Barclays Plc, one person familiar with the matter said.

Other potential bidders -- including Eircom Group and Liberty Global Inc. (LBTYA)’s UPC Ireland -- have also received information on the sale, a person familiar with the matter said June 10. Telefonica continues to court the other suitors, having given them access to additional data in the past few days, following recent O2 management presentations in Dublin, three people familiar with the current talks said.

Officials at Eircom and Liberty Global declined to comment.

Second Largest

O2 is the second largest of five operators in the Irish mobile-phone market, which generated 1.5 billion euros of sales last year. The company’s market share fell to 25 percent in the fourth quarter from 34 percent two years earlier, as Vodafone Group Plc (VOD), Eircom and Three Ireland added customers, according to ComReg, the Dublin-based communications authority.

After an $85 billion acquisition spree over a decade increased debt and triggered rating cuts, Telefonica Chief Executive Officer Cesar Alierta last year began selling assets. The company is studying ways to raise money from its Colombian unit after it shelved plans to carry out an IPO for the company’s Latin American division mainly because of valuation.

The Irish and Czech divisions are high on a list of potential businesses for sale, people familiar with the plans said in April. Other candidates include Telefonica’s remaining minority stake in China Unicom (Hong Kong) Ltd.

In March, Telefonica sold $1.3 billion of treasury stock to reduce debt. A month later it agreed to sell a 40 percent stake in its Central American assets to closely held Corporacion Multi Inversiones to raise $500 million.

To contact the reporters on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net; Matthew Campbell in London at mcampbell39@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editors responsible for this story: Heather Smith at hsmith26@bloomberg.net; Edward Evans at eevans3@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net

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