Report: Telefónica mulls plan B as UK merger proposal wobbles

Telefónica is considering alternative options to the planned sale of its O2 UK business to CK Hutchison, as hopes that the European Commission (EC) will approve the merger proposal continue to recede.

Although the EC has until May 19 to make its decision, reports this week suggested that the proposed £10.25 billion (€12.8 billion/$14.5 billion) transaction could be formally blocked within weeks. Hutchison is said to have been unable to allay regulatory concerns over the deal, which would reduce the number of mobile network operators from four to three by merging O2 UK with Three UK.

The Spanish operator had been banking on the O2 deal to help it reduce its debt mountain of around €49.9 billion ($56.7 billion). According to Bloomberg, which cited unnamed sources, the Spanish operator is now formulating "plan B" in the event that the Hutchison deal collapses.

The news agency said options include finding a new buyer for O2, with Liberty Global and private equity firms cited as potential buyers, as well as an O2 spin-off. The sources also told Bloomberg that Telefónica is pressing ahead with plans to spin off the new Telxius mobile towers unit, although an IPO of the unit would only raise about $4 billion (€3.5 billion).

A Telefónica spokesperson declined to comment on the report.

Javier Borrachero, head analyst for telecommunications at Kepler Cheuvreux, told Bloomberg that a sale of O2 was the best option for Telefónica because it was the "cleanest" way to resolve the debt issue.

"You sell everything and for cash, and you can fix the debt problem quickly," Borrachero said.

Of course, the Hutchison deal is far from dead and remains an ongoing possibility until the EC makes its pronouncement. It's not clear what else the Hong Kong-based company may still have up its sleeve.

Reports have suggested that the only acceptable solution would be if Hutchison agreed to sell part of the merged entity's infrastructure to a new rival in order to retain a fourth MNO.

However, Hutchison described the sale of Three UK or O2 to a new MNO to gain approval for the merger as a "red herring", and said there was "no taker for such a remedy."

For more:
- see this Bloomberg article

Related articles:
Report: CK Hutchison failing to convince EU regulators over O2 takeover
Hutchison says sale of Three or O2 to new MNO is a 'red herring'
Mallinson: Brexit referendum affects EC decision on proposed Three/O2 UK merger
UK regulator calls on EC to maintain 4 operators or block Three/O2 merger
EC opens in-depth investigation into Hutchison's planned Wind Italy deal

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