Li Ka-shing's Hutchison Whampoa to buy Britain's O2 for $20.5 billion

A 2005 file photo of an O2 mobile phone store in London. Hong Kong tycoon Li Ka Shing's Hutchison Whampoa said on Jan 23, 2015 it is in "exclusive negotiations" to buy O2 - a deal that would create Britain's biggest mobile phone group. -- PHOTO: AFP
A 2005 file photo of an O2 mobile phone store in London. Hong Kong tycoon Li Ka Shing's Hutchison Whampoa said on Jan 23, 2015 it is in "exclusive negotiations" to buy O2 - a deal that would create Britain's biggest mobile phone group. -- PHOTO: AFP

MADRID 23 (Reuters) - Li Ka-shing's Hutchison Whampoa Ltd has agreed to buy Telefonica's British mobile unit O2 for up to £10.25 billion (S$20.50 billion), as Asia's richest man makes his boldest bet yet to revamp his European telecoms business.

Hutchison already operates the Three Mobile network in Britain, and buying second-ranked O2 from the Spanish group in Li's biggest ever takeover will make it the top mobile operator in the country.

The company made its first forays into European telecoms markets in 2000, but returns from the business have lagged other parts of Li's ports-to-property empire.

Li and his chief dealmaker Canning Fok have doubled down in response, sinking more money into Europe as they look to snap up businesses from operators who have been battered by the continent's debt crisis.

The proposed O2 deal comes just two weeks after the Hong Kong tycoon undertook a major overhaul of his businesses, which will be split into two listed companies, one focusing on property and the second on telecommunications, ports, infrastructure and others.

The revamp will boost Hutchison's acquisition firepower by about US$7 billion as it spins off its property assets to Cheung Kong Holdings Ltd. "The deal indicates that the group is continuously eyeing Europe to seek future growth," said Alex Wong, a director with Hong Kong-based Ample Finance Group.

The marriage of Three Mobile and O2 would mark the latest move towards telecoms consolidation in Britain, where the market is split between four mobile network operators and four separately owned fixed-line and broadband providers.

The deal will mark Li's biggest ever acquisition, overtaking Hutchison's US$7.5 billion purchase of Britain's Northumbrian Water Group in 2011, according to Thomson Reuters data.

Hutchison shares were briefly suspended ahead of the announcement, and jumped more than 4 per cent when trading resumed, outpacing a 1.2 per cent rise in Hong Kong's benchmark Hang Seng share index.

The company said in a statement that it had: "agreed to enter into exclusive negotiations with Telefónica SA over a period of several weeks" for the potential acquisition.

It said it had agreed to pay an indicative price of £9.25 billion, with another £1 billion in "interest sharing payments" should the combined business reach certain cash flow targets.

Hutchison will fund the deal with a £6 billion bank loan. The company is in talks with private equity firms and others to bring in minority partners, who would be offered not more than a 30 per cent stake, Sixt added.