Hutchison mulls IPO for merged O2-Three, but deeper EU probe looms

A future combined O2 UK and Three UK could eventually become a listed company, although the proposed deal to merge the two mobile operators continues to hang in the balance with reports suggesting it will now be subject to a full-scale investigation by the European Commission (EC).

The Financial Times reported that CK Hutchison, which wants to buy O2 UK from Telefónica and merge it with Three UK in a deal worth £10.3 billion (€14 billion/$16 billion), has discussed the possibility of an initial public offering (IPO) for the combined business with external investors that have already committed £3 billion to fund the deal.

Canning Fok, co-CEO of the Hong Kong-based group, told the paper that an IPO would be one way to provide the liquidity required by investors, although he did not provide a timeframe.

"It's only reasonable that you give yourself some time. No one is a magician…you need to work on business, and get the customer happy," Fok said.

In the interview with the FT, Fok also said that Three UK CEO David Dyson would run the combined business. The future of O2 CEO Ronan Dunne is currently uncertain. However, Fok said it is possible that both brands will be retained.

"You can assume that it might become Three. But there is a twist," he said. "We haven't made the final decision yet. We have a certain time we can use O2. It's a strong brand," he said.

Fok remained confident that Hutchison would win EC approval for its proposed deal in the UK as well as its plan to buy Wind in Italy, and appeared unfazed by the recent failure of plans by TeliaSonera and Telenor to merge their respective mobile units in Denmark.

"This market is full of competition. We have done this exercise in Austria and Ireland and we will come up with a solution in which everyone is comfortable," he said.

Despite Fok's confidence, reports say that Hutchison will face a battle to secure EC approval for its UK deal. Citing unnamed sources, Reuters said the Hong Kong-based group is set to face an extensive probe over its bid and has already signalled it is prepared to sell network capacity and frequencies to overcome regulatory concerns.

According to Reuters, the preliminary review of the deal that is set to end on Oct. 16 will now be followed up by a full-scale or 'phase-two' investigation that will last around five months. As things stand, nothing has been officially confirmed by any of the parties involved.

For more:
- see this Financial Times article (sub. req.)
- see this Reuters article

Related articles:
M&A momentum stutters in Europe's mobile markets
Analysts: Telenor, TeliaSonera's Danish dilemma could impact similar deals in UK and Italy
Analysts: Three Italy, Wind merger pressures rivals, but regulator clearance not assured
Hutchison Whampoa to sell 33% of combined UK unit for up to £3.1B
O2 UK talks up potential consumer benefits of Hutchison Whampoa buyout