Could Li Ka-Shing Crash BT's M&A Party?

Hong Kong-based billionaire Li Ka-Shing is getting ready to start a mobile networks bidding war with BT, according to reports.

November 28, 2014

3 Min Read
Could Li Ka-Shing Crash BT's M&A Party?

As it engages with takeover talks with the UK's two largest mobile operators, BT might find itself with some unwelcome company in the form of Li Ka-Shing's Hutchison Whampoa.

BT Group plc (NYSE: BT; London: BTA) is currently in early M&A discussions with EE and Telefónica UK Ltd. (better known as O2 UK), the UK's two largest mobile operators, about a potential acquisition, as previously reported. (See Why BT + EE Makes More Sense and Eurobites: BT in Talks to Buy O2.)

But according to a report from Reuters, Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY), which owns the UK's number four mobile operator Hutchison 3G UK Ltd. (better known as 3 or Three), is also preparing bids for O2 and EE.

According to unidentified sources with knowledge of Hutchison's plans, a bid for either could be made by the end of the year.

There is no official confirmation that any such move is in the works, but it's in line with market expectations for Li Ka-Shing, chairman of Hutchison Whampoa and according to Bloomberg's calculations, the richest person in Asia. (See Li Ka-shing in the Hunt for EU Telcos.)

And you can see why Hutchison might consider the UK as the next place to expand its European mobile 3 Group Europe empire, which also includes operations in Austria, Denmark, Italy, Italy and Sweden.

Having entered the UK mobile market as a new entrant after it won a 3G license in the spectrum auctions 14 years ago, Hutchison 3G UK was given little chance of survival by many as it had to build a new network from scratch and try to build a business from nothing in the post-bubble years. But it has persevered, now has 8 million active customers (at June 30) and generated revenues of £974 million (US$1.53 billion) and an operating profit of £123 million ($193 million) during the first six months of 2014.

That still makes it a minnow compared with its bigger rivals EE, O2 UK and Vodafone, but it is now an established player and a brand associated with mobile broadband -- data services have always been at the heart of its proposition and its network was built with IP transport rather than circuit-switched voice as its core.

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Having got this far, it won't want to be have its future jeopardized by BT buying one of the major mobile players, so achieving greater scale through an acquisition would be one way of cementing its position in the market. Hutchison Whampoa is a major conglomerate and has already participated in mobile consolidation in Europe recently, having battled long and hard (more than a year) to acquire O2 Ireland for €850 million ($1 billion), a deal that concluded in July 2014. (See Three to Acquire O2 Ireland.)

Buying one the UK's major operators would take more financial firepower, though, with the price tags on O2 UK and EE likely to range from $17 billion to $25 billion.

With corporate strategies, pricing and the intervention of regulatory and competition authorities standing between any takeover deals by either BT or Hutchison, it's impossible to predict an outcome. What is certain, though, is that BT's desire to own an established national mobile network operator has lit a fire under the UK mobile market.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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