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Telefónica Swoops In on O2

Light Reading
News Analysis
Light Reading
10/31/2005

In the latest example of European incumbents buying up mobile operations abroad, Spain's Telefónica SA has made an offer for O2 plc (NYSE/London: OOM) of £17.7 billion ($31.4 billion) in cash. (See Telefónica Acquires O2.)

At £2 ($3.55) per share, that puts the deal at a 22 percent premium over O2's share price at close of business on Friday. Shares in the operator rose by 40.25 pence (71.4 cents), 24.51 percent, to 204.50 pence (362.78 cents) in mid-morning trading on the London Stock Exchange. Telefónica shares had been suspended for the announcement, and fell by 2.8 percent to €13.24 ($15.97) when they resumed trading this afternoon.

In a conference call with analysts, Telefónica's executive chairman Cesar Alierta laid out the benefits of the deal: "First it accelerates further Telefónica's already beneficial growth prospects, widening the gap with our peers. Second it improves Telefónica's scale and generates tangible synergies; we are entering in the two largest markets in Europe. And third, it rebalances our exposure by business and region."

The companies will have a joint customer base of 116 million mobile subscribers, making Telefónica one of the largest and fastest-growing operators in Europe.

"We believe that scale and not just size is becoming increasingly important in the telecom sector," said Alierta, emphasizing the €3.3 billion (US $3.96 billion) in synergies Telefónica expects to gain. In that sense, the O2 buy fits in with the move by operators to "better serve their clients and serve them more efficiently," he said. "We ... are managing our operations to stress synergies across business regions and technologies [and so far] we are experiencing tangible scale benefits in our day-to-day operations."

Read the rest of the article on Unstrung — Nicole Willing, Reporter, Light Reading

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