Three UK could stay separate from O2 UK as Hutchison mulls plan B

CK Hutchison said it is considering the sale of a stake in Three UK to another investor, in a move that could lead to Three and O2 being maintained as separate entities in future should the group's proposal to buy O2 be approved.

In a statement contained in its annual report for 2015, the Hong Kong-based group said the sale was "with a view to further reducing the new cash investment required from the group to fund the acquisition."

It further noted that this revised business structure "would be directed to achieving benefits in terms of operational strategy and focus, regulatory approvals and contractual obligations, while preserving financial and operational efficiencies and savings expected from the acquisition of O2 UK."

Frank Sixt, finance director at Hutchison, told the Financial Times that the maximum stake for the new investment would be 10-20 per cent.

He added that keeping the two companies separate "may have operational value to us in terms of how the networks are integrated and how the brands are used."

Hutchison, which has been involved in intensive negotiations with the European Commission (EC) over the past two weeks, has already suggested a number of concessions to help alleviate concerns that its plan to merge O2 with Three UK would harm competition.

Reports earlier this week said the company had offered to award about 30 per cent of its network capacity in the UK to rivals. However, the EC is understood to be demanding the creation of a fourth, fully separate network.

Hutchison, which in March last year entered into an agreement with Telefónica to acquire O2 UK for a total of £10.25 billion (€13 billion/$14.8 billion), has already agreed to sell about 32.98 per cent of a future combined business of Three UK and O2 UK to five institutional investors for a total of £3.1 billion.

Canning Fok, the group co-managing director of CK Hutchison who has remained bullish on the prospects for a successful outcome of the merger proposal, also said Ofcom "is dreaming" if it thinks that blocking the merger would prevent price rises.

Fok told Reuters that "we stopped being the maverick in 2014 and started raising prices because of capacity concerns."

Meanwhile Hutchison said Three Group Europe -- which includes mobile network operations in a number of European markets including the UK -- increased its active subscriber base by 4 per cent to over 26.1 million in 2015. European currency weakness led to a 4 per cent drop in revenue in reported currency to HK$62.78 billion (€7 billion/$8 billion), while EBITDA and EBIT in reported currency grew by 12 per cent and 69 per cent to HK$17.4 billion and HK$11.66 billion respectively.

For more:
- see this Reuters article
- see this Financial Times article (sub. req.)
- see CK Hutchison's results

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