Hutchison Whampoa share price up, nears O2 acquisition

Hutchison Whampoa Ltd is close to striking a deal with Telefonica to acquire its British cellphone operator O2 for around £10.25 billion.

Owned by the richest man in Asia Li Ka-shing, the company intends to merge O2 with its existing mobile business Three in order to create the biggest mobile operator in Britain.

According to the Financial Times, discussions between the two companies have gone smoothly and a possible deal could be officially announced on Tuesday at the earliest. The newspaper cited people familiar with the matter saying that there were no major disagreements during negotiations.

In January Hutchison confirmed that it had entered exclusive talks with Spains Telefonica to buy O2, currently the second-largest mobile service provider in the U.K.

Hutchison has said that it would pay £9.25 billion in cash to Telefonica and an additional £1 billion over a period of time following the merger between O2 and Three, which would create an entity with more than 31 million subscribers.

This will be the largest deal of Mr. Ka-shing ever, overshadowing his £5.8 billion acquisition of U.K.s power company EDF Energy.

However, it may face regulatory opposition as it will further reduce the number of mobile operators in the U.K., spurring concerns of lower competition and thus higher prices.

Before Hutchison, Telefonica was negotiating with BT over its O2 business as the Madrid-based company looks to exit the British mobile market. At the time, however, BT was also in talks with Orange and Deutsche Telekom and eventually reached an agreement to acquire EE, the largest mobile network operator in the U.K.

If the deals close, the U.K. mobile market will be divided among only three companies, including rival Vodafone, which is expected to object to both deals.

Hutchison is expected to partially finance the deal by selling a maximum of 30% of the O2 deal to outside investors.

Hutchison gained 0.2% on Tuesday and closed at HKD 103.60 in Hong Kong, marking a one-year increase of 8.8%. The company is valued at HKD 440.83 billion.

According to the Financial Times, the 9 analysts offering 12-month price targets for Hutchison have a median target of HKD 122.14, with a high estimate of HKD 136.00 and a low estimate of HKD 113.00. The median estimate represents a 18.1% increase from the last closing price.