Telefonica's O2 buyout buoys outlook

Oct 31, 2005

Business hopes are high at Telefonica in acquiring O2, a deal that was officially announced Monday after weeks of speculation.
The Spanish company, which is the world's fifth-largest telecommunications group in terms of market value, said it will pay $31.5 billion for the British mobile provider by paying $3.55 per O2 share, which is about 22 percent more of the company's closing price last Friday.

The former state-owned enterprise dominates the telecommunications markets in Spain and Latin America with about 145 million subscribers worldwide. It has not, however, been as successful in expanding across the European continent, and the buyout of the British mobile group is expected to bolster Telefonica's presence in Britain and Germany in particular.

In a news release, Telefonica stated that "the combination with O2 is a logical step for Telefonica in pursuing its strategic goal of providing its shareholders with both growth and cash returns," adding that the buyout will "provide enhanced scale by entering two of Europe's largest markets, Germany and (Britain), with critical mass."

Certainly, the corporate climate that prevails in the two companies is not dissimilar, as O2 itself was part of British telecommunications giant British Telecom until November 2001, when it became an independent carrier. It currently has about 25 million subscribers in Britain, Ireland and Germany.

Telefonica Chairman Cesar Alierta stated, "O2 is an excellent company that, driven by a top class management team, has been able to become one of the highest growth mobile operators in Europe. Its integration in the Telefonica group will enhance our growth profile, it will allow us to gain economies of scale, it will open the group to the two largest European markets with sizeable critical mass and it will balance our exposure across business and regions."

Meanwhile, O2 Chairman David Arculus welcomed the buyout, stating that the deal is "an excellent opportunity for O2 shareholders to realize significant value in cash now. ... Our successful brand will be retained and extended bringing benefits to both customers and employees as part of an enlarged, strengthened group."

In a phone conference with reporters shortly after the announcement, O2 Chief Executive Peter Erskine said that the company was "very excited" about the company's prospects going forward, adding that the Spanish phone group will "have no overlapping territory, so they will be able to offer our customers better roaming and better services around the world." Both Arculus and Erskine will have seats on Telefonica's board if the deal goes through. The companies expect the move to be completed by February 2006, pending shareholders' approval.

Investors have warmly welcomed the news, or at least those with shares in the British mobile company have, as O2's stock price soared 25.42 percent to 206. Telefonica, meanwhile, saw its share price tumble 2.94 percent to 13.22.

Still, analysts largely agree that the deal is good for both companies, and not just O2.

"This is, potentially, good news for both operators. For Telefonica, it allows it to enter two of the largest European markets in terms of subscribers and revenues, as well as two of the most advanced and highly competitive markets: U.K. and Germany," said Marta Munoz Mendez-Villamil, senior analyst at Ovum, a private London-based telecommunications research group.

"For O2, it was something bound to happen. They were operating in a market with large players like Vodafone, France Telecom and Deutsche Telekom. They had become too small a fish, and sooner or later were to be eaten," she added.

Copyright 2005 by United Press International

Explore further: Chinese man brings gay conversion therapy lawsuit

add to favorites email to friend print save as pdf

Related Stories

Molecular gate that could keep cancer cells locked up

4 hours ago

In a study published today in Genes & Development, Dr Christian Speck from the MRC Clinical Sciences Centre's DNA Replication group, in collaboration with Brookhaven National Laboratory (BNL), New York, ...

Taking great ideas from the lab to the fab

5 hours ago

A "valley of death" is well-known to entrepreneurs—the lull between government funding for research and industry support for prototypes and products. To confront this problem, in 2013 the National Science ...

SR Labs research to expose BadUSB next week in Vegas

5 hours ago

A Berlin-based security research and consulting company will reveal how USB devices can do damage that can conduct two-way malice, from computer to USB or from USB to computer, and can survive traditional ...

Recommended for you

Android grabs 85% of smartphone market: survey

7 hours ago

Smartphones powered by the Android operating system captured 85 percent of the worldwide market in the second quarter, threatening to marginalize rival platforms, a new survey shows.

Irish bookmaker apologizes for 2010 data breach

8 hours ago

(AP)—Irish betting company Paddy Power announced Thursday it is notifying hundreds of thousands of customers that most of their profile information was stolen in 2010, but hackers did not gain their credit card details ...

Misinformation diffusing online

10 hours ago

The spread of misinformation through online social networks is becoming an increasingly worrying problem. Researchers in India have now modeled how such fictions and diffuse through those networks. They described details ...

User comments : 0