Telefonica to acquire O2 for $31.6B

Telefonica has agreed to acquire UK carrier O2 in an all-cash deal for $31.6 billion. The deal will be entirely funded with debt from a $32.8 billion bridge facility underwritten by Citigroup, Goldman Sachs, and the Royal Bank of Scotland. The companies also expect to save $351.8 million by 2008 from economies of scale. O2 operates in the UK, Ireland and Germany, while Telefonica operates in Spain and Latin America. Telefonica said it plans to retain the O2 board and the company's branding. O2 will contribute 24.6 million customers and 15,000 employees to Telefonica's 145 million customers and 173,000 employees. British Telecom spun off O2 from its BT Group in 2001.

Analysts expect an immediate counterproposal from KPN and Deutsche Telecom, since those companies recently made an unsuccessful joint bid to acquire O2. Regulators required the companies to wait six months before making another bid, but Telefonica's offer enables the companies to counter immediately. O2 would be a good fit for Telefonica, which has spent the last decade and $50 billion on penetrating the Latin American wireless market. However, O2 is a hot commodity these days, and KPN and Deutsche Telecom will raise the stakes.

For more on the Telefonica, O2 deal:
- take a look at this article from the BBC