Telefónica plans to keep O2 UK; will reinstate operation in Q2 2016 earnings

Telefónica confirmed that it has ditched plans to sell its O2 UK business in a move apparently connected to market turmoil that has resulted from UK citizens' decision to leave the European Union (EU).

The Spain-headquartered operator told Bloomberg that it is putting plans to sell its UK mobile operation on ice until market conditions improve, and will explore its strategic options for the business in the meantime.

In a related Reuters report, the operator said it plans to reinstate O2 UK's earnings into its group financial statements when it reports Q2 2016 earnings in late July. The company has reported its UK business as a discontinued operation since Q1 2015.

Telefónica's announcement confirms an earlier Bloomberg report that the operator was erring towards holding onto O2 UK after a planned £10.3 billion (€12.4 billion/$13.8 billion) sale to CK Hutchison was blocked by the European Commission (EC) due to competition concerns.

The news agency immediately drew a line between Telefónica's decision and the recent UK vote to exit the EU, referring to the decision as one of the "biggest examples so far of the damage" that decision is having on businesses in the UK and beyond.

Options Telefónica was believed to be mulling following the EC's block on its deal with CK Hutchison included a sale to an alternative buyer and a reported £8.5 billion management buyout bid. According to Bloomberg, the operator was also considering selling a minority stake in O2 UK via an IPO.

The news agency warned that credit ratings agency Moody's may now downgrade Telefónica because the operator has few options remaining to deal with a debt pile of €50.2 billion ($55.9 billion). The sale of O2 UK and a potential IPO of Telefónica's Telxius tower business would have gone some way to easing that debt burden. The Telxius IPO is also believed to be on hold.

Telefónica previously told Reuters that it is in no rush to make a decision about O2 UK, and that it is maintaining its financial targets for 2016.

For more:
- see this Bloomberg O2 UK sale report
- read this Reuters earnings report
- view this previous Bloomberg article
- see this Reuters report

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