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Mergers & Acquisitions

Hong Kong billionaire Li Ka-shing’s Hutchison blocked by European Commission from buying British mobile operator O2

£10.25 billion deal would have been tycoon’s biggest overseas acquisition

PUBLISHED : Wednesday, 11 May, 2016, 9:11pm
UPDATED : Thursday, 12 May, 2016, 2:42pm

The European Commission has rejected the proposed £10.25 billion (HK$115.14 billion) acquisition of British mobile network operator O2 by tycoon Li Ka-shing’s CK Hutchison Group, which said it would consider a legal challenge.

The decision to block the deal, which would have merged the operations of Hutchison subsidiary Three UK with O2, was based on strong concerns that British mobile customers would have had less choice and paid higher prices as a result of the takeover, the commission said.

Hutchison agreed in March last year to buy O2 from Telefonica UK to form Britain’s biggest mobile network operator, with almost 33 million customers and more than 40 per cent market share.

The blockbuster deal would have been Li’s biggest overseas acquisition, surpassing the £5.77 billion paid by Cheung Kong Infrastructure to take over UK Power Networks in October 2010.

We strongly believe that the merger would have brought major benefits to the UK
Hutchison

In a statement on Wednesday, Hutchison said it would study the commission’s decision in detail and consider various options, “including the possibility of a legal challenge”.

“We strongly believe that the merger would have brought major benefits to the UK ... by addressing the country’s coverage issues, enhancing network capacity, speeds and price competition for consumers and businesses across the country,” Hutchison said.

It said it would now focus on working with the commission to clear the proposed merger of subsidiary 3 Italia and Rome-based mobile network operator Wind Telecomunicazioni.

Matthew Howett, an analyst at consultancy firm Ovum, said in a report that hostility from two British regulators, the Office of Communications and the Competition and Markets Authority, to the proposed O2 takeover “coupled with an unsympathetic EU Competition Commission, always made [that deal] a tricky one to get through”.

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The acquisition would have left only two mobile network operators, Vodafone and BT’s Everything Everywhere, to compete against the merged Three-O2 operation.

“Across Europe, the sentiment for greater industry consolidation started to wane following suspected price increases in markets where the number of mobile players fell from four to three,” Howett said.

Margrethe Vestager, the regulator in charge of the commission’s competition policy, said Hutchison’s proposed takeover of O2 “would also have hampered innovation and the development of network infrastructure in the UK”.

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“The remedies offered by Hutchison were not sufficient to prevent this,” she said.

In February, Hutchison promised to freeze prices and make £5 billion in new investments in Britain, as well forge wholesale network agreements with competitors.

Howett said the concessions the commission wanted – the creation of a fourth mobile network operator – “went beyond what anyone was prepared to offer”.

He said it “would have undermined the whole economic rationale of the merger”.