Li’s Hutchison Said to Near $15 Billion Deal for U.K.’s O2

Billionaire Li Ka-shing’s Hutchison Whampoa Ltd. is close to a deal to buy Telefonica SA’s U.K. wireless carrier, O2, for more than 10 billion pounds ($15 billion), two people with knowledge of the matter said.

An agreement, which would create the country’s largest mobile operator, could be announced as soon as Friday, the people said, asking not to be identified discussing private information. Together, O2 and Hutchison Whampoa’s Three would have more than 31 million subscribers.

The U.K. is primed for more deals after wireless-market leader EE began exclusive talks last month to be acquired by BT Group Plc, leaving smaller carriers looking for ways to compete. O2 had been in talks about a combination with BT, and was left out after the former U.K. phone monopoly chose EE.

Hong Kong-based Hutchison was studying other options in Europe including merging its Italian mobile unit with a local competitor, people familiar with the matter said this week, asking not to be identified because the deliberations are private.

A representative for Madrid-based Telefonica declined to comment. Laura Cheung, a spokeswoman for Hutchison in Hong Kong, couldn’t immediately be reached. The O2 purchase was reported earlier by the Financial Times.

Hutchison shares were suspended from trading today in Hong Kong.

Telefonica Debt

The proceeds will help Telefonica reduce its net debt, which more than doubled in the decade through September as it went on a buying spree in Europe and Latin America. The 17.7 billion-pound takeover of O2 in 2006 is its most expensive acquisition on record.

The Spanish carrier said in early 2014 that it would keep its debt below 43 billion euros ($49 billion).

Europe’s telecom industry is headed for further consolidation. A lighter regulatory stance toward consolidation and competition among wireless services may encourage deals in Italy, France, Spain and the Netherlands, according to Bloomberg Intelligence.

Revenue from telecommunications services in Europe will probably decline 1.5 percent this year after falling 2.2 percent last year, according to Ovum estimates. That improvement indicates a lower regulatory burden, wider adoption of fiber-optic and 4G networks, and the potential for improved pricing because of consolidation in Ireland, Austria and Germany.

Reorganizing Empire

Li, Asia’s richest man, is reorganizing his empire, which ranges from Asian real estate to ports and telecommunications businesses across Europe. Earlier this month, he announced a $24 billion proposal to merge his two main holdings companies -- Cheung Kong Holdings Ltd. and Hutchison Whampoa -- and spin off the real estate business. Less than two weeks later, Li companies announced they’ll spend at least 1.03 billion pounds ($1.5 billion) to buy the U.K.’s Eversholt Rail Group.

Li, 86, may just be getting warmed up. On Jan. 9, Li’s long-time deputy Canning Fok signaled that the Cheung Kong-Hutchison deal would provide more flexibility to invest in new businesses.

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