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November 18, 2005 6:15 pm

Telefónica breaks silence on bid for O2

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Telefónica on Friday briefly broke its silence on its £17.7bn ($30.4bn) bid for O2, as one of the Spanish telecoms group’s most senior executives apologised to investors for surprising them with a deal that ran counter to its strategy.

Shareholders were caught off-guard by Telefónica’s agreed offer for the UK’s second largest mobile phone operator last month.

The Spanish company had previously signalled its search for acquisitions was focused on medium-sized operators with fixed and mobile operations in the Mediterranean basin and eastern Europe. It is known to be interested in OTE but the Greek government, which owns a majority stake, is unlikely to sanction a sale in the short term.

Santiago Fernández Valbuena, Telefónica chief financial officer, said that after a number of failed attempts in North Africa the watershed in the group’s strategy came when the Spanish company withdrew from the auction of Turk Telecom, Turkey’s state-owned operator, in April.

“If you are an investor we owe you an apology because we weren’t able to communicate this change in strategy,” Mr Valbuena told a Morgan Stanley investor conference in Barcelona.

Telefónica publicly denied interest in O2 as recently as September. Mr Valbuena said this was necessary to pull off the audacious swoop on the company.

Deutsche Telekom had targeted the mobile operator, which has operations in the UK, Germany and Ireland, earlier this year in a failed attempt to launch a joint bid with KPN of the Netherlands. Mr Valbuena refused to discuss any further the implications of the deal or Telefónica’s plans for O2, citing restrictions under UK takeover rules.

The deal is expected to close early next year.

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