The Boards of Directors of TelefÃƒÂ³nica and O2 are pleased to announce today that agreement has been reached on the terms of a recommended cash offer to be made by Goldman Sachs International and Citigroup, on behalf of TelefÃƒÂ³nica, or a wholly-owned subsidiary of TelefÃƒÂ³nica, to acquire the entire issued and to be issued share capital of O2.
The Offer will be at 200 pence in cash for each O2 Share which values O2 at approximately Ã‚Â£17.7 billion.
The combination with O2 is a logical step for TelefÃƒÂ³nica in pursuing its strategic goal of providing its shareholders with both growth and cash returns. TelefÃƒÂ³nica believes that the combination with O2 will:
- accelerate TelefÃƒÂ³nica's superior growth profile relative to its peers
- provide enhanced scale by entering two of Europe's largest markets, Germany and the UK, with critical mass
- balance TelefÃƒÂ³nica's portfolio across businesses and regions
- generate an estimated run-rate of EUR 293 million (Ã‚Â£199 million) of quantified annual operating cost and capital expenditure synergies by 2008
- be immediately accretive to earnings per share, cash earnings per share and free cash flow per share1
- enable TelefÃƒÂ³nica to preserve its stated shareholder remuneration policy based on dividends and share buy backs
The Offer of 200 pence per O2 Share represents a premium of approximately 22 per cent. over the middle market price of an O2 Share of 164.25 pence at the close of business on 28 October 2005, being the last dealing day before this announcement.
O2 Shareholders will be entitled to receive an interim dividend for the six months ended 30 September 2005 of 1.54 pence per O2 Share, which is expected to be paid on 2 December 2005 to the registered holders of O2 Shares at the close of business on 11
O2 will retain its existing brand and will continue to be based in the UK. O2's operating business will be led by the current management and Sir David Arculus and Peter Erskine will join the Board of Directors of TelefÃƒÂ³nica.
The Directors of O2, who have been so advised by JPMorgan Cazenove and Merrill Lynch, consider the terms of the Offer to be fair and reasonable. In providing advice to the Directors of O2, JPMorgan Cazenove and Merrill Lynch have taken into account the commercial assessments of the Directors of O2. Accordingly, the Directors of O2 unanimously intend to recommend holders of O2 Shares to accept the Offer as they have irrevocably undertaken so to do in respect of their own aggregate beneficial shareholdings. Merrill Lynch is deemed to be a connected party to TelefÃƒÂ³nica. As a result, only JPMorgan Cazenove is acting as the independent financial adviser to O2 for the purposes of providing independent advice to the Board of O2 on the Offer under Rule 3 of the City Code.
TelefÃƒÂ³nica has received irrevocable undertakings to accept the Offer from the Directors of O2 in respect of 2,820,573 O2 Shares in aggregate, representing approximately 0.032 per cent. of O2's issued share capital. These undertakings will remain binding in the event of a higher competing offer.
A Loan Note Alternative of up to Ã‚Â£1 billion will, subject to certain conditions, be made available.
The acquisition will be implemented by way of the Offer unless TelefÃƒÂ³nica elects to implement it by way of a Scheme of Arrangement. The Offer is conditional, amongst other things, upon receiving the required regulatory clearances. TelefÃƒÂ³nica expects the Offer to complete in January 2006. Further information on the terms and conditions to which the Offer will be subject are set out in Appendix I and will be set out in the Offer Documentation, which TelefÃƒÂ³nica expects to despatch to O2 Shareholders in November.
The Chairman of TelefÃƒÂ³nica, Mr. CÃƒÂ©sar Alierta said: "O2 is an excellent company that, driven by a top class management team, has been able to become one of the highest growth mobile operators in Europe. Its integration in the TelefÃƒÂ³nica group will enhance our growth profile, it will allow us to gain economies of scale, it will open the group to the two largest European markets with sizeable critical mass and it will balance our exposure across business and regions. This transaction will be accretive from year one, it will allow us to preserve our shareholder remuneration policy and, in short, it will reinforce TelefÃƒÂ³nica's strategic goal of offering the best combination of growth and cash returns to our shareholders."
Commenting on the Offer, Sir David Arculus, Chairman of O2, said: "This Offer from TelefÃƒÂ³nica, which reflects the value created since demerger and the potential of the O2 Group going forward, is an excellent opportunity for O2 Shareholders to realise significant value in cash now. The combination of O2 and TelefÃƒÂ³nica will be a powerful force in international communications. Our successful brand will be retained and extended bringing benefits to both customers and employees as part of an enlarged, strengthened group."
Commenting on the Offer, Peter Erskine, the Chief Executive of O2, said: "Since the emergence of O2 as a listed company in 2001, it has enjoyed considerable operational success and, in the process, delivered real value to shareholders. This transaction brings together two companies which are growing strongly with highly complementary geographical activities."
I always had TelefÃƒÂ³nica on my list as most reasonable buyer of O2, not T-Mobile nor KPM and today it happened what I always predicted. Nevertheless, I hope TelefÃƒÂ³nica will leave O2 as independent as possible, especially in terms of their Windows Mobile development but the future will show.
Cheers ~ Arne