Spanish telco buys O2 for £17.7bn

O2 will retain its existing brand and will continue to be based in the UK, the companies said in a joint statement.

The move confirms year-long take over rumours concerning O2, due to its small scale compared to rivals, such as Vodafone and Orange, and its strong position in the UK market.

Two months ago, Germany’s Deutsche Telekom and Holland’s KPN confirmed they had held exploratory talks about a joint bid for O2 but decided against making a move.

O2, which was formed following it’s demerger from BT in 2001, will be led by current management, O2 chairman Sir David Arculus, and CEO Peter Erskine, who will join the board of directors of Telefónica.

Telefónica offered 200p for each O2 share, which represents a premium of about 22 per cent over the middle market price of an O2 share of 164.25p at the close of business on October 28, the last dealing day before the announcement.

Some traders are expecting O2 shares to rise above 200p on the possibility of a counter-bid.

Telefónica said it expected to offer to be completed in January 2006, subject to regulatory clearance.