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Telef髇ica bids for O2 in plan to extend reach
By Lucy Killgren in London
Published: October 31 2005 08:20 | Last updated: October 31 2005 09:24
Telef髇ica on Monday agreed to buy O2, the UK-based independent mobile phone operator for ?7.7bn ($31.45bn), as it moved to strengthen its hand in Europe.

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Telef髇ica said in a statement the deal would provide 揺nhanced scale by entering two of Europe抯 largest markets, Germany and the UK?
Telef髇ica offered 200p for each O2 share, which represents a premium of about 22 per cent over the middle market price of an O2 share of 164.25p at the close of business on October 28, the last dealing day before the announcement.
C閟ar Alierta, chairman of Telef髇ica said: 揙2抯 integration in the Telef髇ica group will enhance our growth profile, and will allow us to gain economies of scale and open the group to the two largest European markets with sizeable critical mass and will balance our exposure across business and regions.?/P>


European telecoms heats up


Telef髇ica抯 bid, which could create the world抯 second-biggest telecoms company, highlights growing consolidation in the sector.
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Jonathan Groocock, of Oriel Securities said in a note: 揑t will be interesting to see if this offer flushes out a rival bid from other players, notably KPN and Deutsche Telekom.?However he added that such a move by Deutsche Telekom would be more difficult in that Deutsche already has operations in the UK and Germany. 揟here would likely be more regulatory hurdles for them to jump, ?he said.
Rumour has intensifed around O2 in the past year amid a wave of acquisitions in the European telecoms markets, culminating in confirmation from Germany抯 Deutsche Telekom and Holland抯 KPN two months ago that they had held exploratory talks about a joint bid but decided against making a move.


Timeline: O2



Since it demerged from BT in 2001, O2 has been on a rollercoaster of huge losses, a spectacular resurgence and bid speculation
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O2 has been at the centre of take-over speculation since it was demerged from BT in 2001 because of its lack of scale relative to rivals, and its strong position in the UK market.
Mr Groocock added that he was not expecting any difficulties clearing regulatory hurdles as Telef髇ica does not operate in the UK, Germany or Ireland.
In a joint statement, the companies said that O2 would retain its existing brand and would continue to be based in the UK.
O2 shares have nearly doubled in the past year, from 105緋 in October 2004. O2 shares rose 24 per cent on Monday in early trade to 203紁 in London.
Shares in Telef髇ica were suspended.
The business will be led by current management and Sir David Arculus, chairman of O2, and Peter Erskine, chief executive will join the board of directors of Telef髇ica.
Sir David said: 揟he combination of O2 and Telef髇ica will be a powerful force in international communications.?/P>
Telef髇ica said it expected to offer to be completed in January 2006, subject to regulatory clearance.
Mr Alierta said that the transaction would be accretive from year one.
Telef髇ica was advised by Goldman Sachs and Citigroup Global Markets, while JP Morgan Cazenove and Merill Lynch are acting for O2.
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