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O2 Says Yes to Spanish Giant's GBP 17bn Offer

Posted on: Tuesday, 1 November 2005, 06:00 CST

By Martin Flanagan City Editor

MOBILE phone group O2, the former wireless telephony arm of BT floated off on the stock market four years ago, has received an agreed GBP 17.7 billion takeover bid from Spain's Telefonica.

In a very swift consummation, talks began on Friday, and the O2 board, led by Peter Erskine, recommended the deal to shareholders yesterday.

Telefonica is offering what is seen as a fairly full price of 200p per O2 share, 22 per cent above last Friday's closing price.

However, yesterday the British company's shares jumped nearly 25 per cent to 206p, as speculation mounted that the Spanish company's move might spark an auction.

Deutsche Telekom, the former German monopoly, and its Dutch peer, KPN, teamed up for an aborted bid for O2 last August.

Erskine, who stands to make GBP 2 million from the one million shares he owns in O2, and who will also continue running the company as well as joining the Spanish parent's board, said it was a good deal for shareholders, employees and customers. He added: "Telefonica is a great company and because there is no geographical overlap between our operations, jobs should be safe."

Erskine said customers of O2, which sponsors Arsenal Football Club, would benefit from "better roaming and better services around the world".

Assuming the bid goes ahead, it will allow Telefonica to break into the UK market and re-enter Germany, which it abandoned in 2002.

Cesar Alierta, chairman of Telefonica, said the acquisition "will allow us to gain economies of scale, it will open the group to two of the largest European markets with a sizeable critical mass and it will balance our exposure across business and regions".

Telefonica, whose heartland is Spain and Latin America, had 173,000 staff at the end of last year, with 145 million customers.

Via O2, the company will gain another 24 million customers in the UK, Ireland and Germany.

Telefonica forecast that network cost efficiencies, and handset and equipment purchasing savings would generate annual cost savings of GBP 200m by 2008.

The takeover deal did little to dispel speculation that a rival bidder might come in. "Do I think someone else will come to the table? Absolutely," said Deutsche Bank analyst Gareth Jenkins, adding that Deutsche Telekom could pay more with a cash-and-share bid.

A Frankfurt-based dealer put the chances of a German counter-bid at 50 percent. However, KPN, which also saw its own offer for O2 spurned last year, remained adamant it had no plans to try again. "We made a bid but it was refused because of the price and that's it," a spokesman said. "We are not planning a counter-bid."

Telefonica said the deal would boost earnings per share by 3 per cent in 2006 and 6 per cent in 2007, adding it would generate an estimated E293m (GBP 198m) of annual operating cost and capital expenditure savings by 2008. E

Source: Scotsman, The

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