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Telefónica’s bid for O2 comes during a year of increasing M&A activity and consolidation in the European telecommunications sector.

Although the O2 bid tallies with Telefónica’s aim of European expansion, particularly in Germany and the UK, the Spanish mobile operator’s next target was not expected to be a mobile-only operator.

“This acquisition contradicts management’s comments to us that they were looking for an integrated rather than mobile operator,” noted Bear Stearns & Co in an analyst’s report.

The regulatory hurdles are expected to be much lower for Telefónica than they would be from Deutsche Telekom, as O2’s German operations would present a challenge for DT to prove it would not lessen competition there.

There is also speculation from some analysts that Telefónica’s offer could “flush out” further bids for O2.

KPN, the Dutch telecoms group, and DT considered a joint bid for O2 two months ago, but decided against going ahead with an offer.

However, there is a renewed expectation that DT - fuelled by the Telefónica bid - might be reconsidering.

Last week Guy Peddy, an analyst at Deutsche Bank, told the Financial Times that a bid by DT for O2 would make sense, at a price of up to 200p per share - the same price offered by Telefónica.

Meanwhile KPN itself has been the subject of takeover talk, with its shares rising in early October on a report that Telefónica was considering a €20bn offer.

Telefónica’s O2 bid comes at a time of increased M&A activity in the European telecommunications sector.

Just last month, Telefónica bought 51 per cent of Cesky Telecom of the Czech Republic for €2.7bn. France Telecom in July bought Spanish mobile operator Amena for €6.4bn, and there have been several smaller deals such as the leveraged takeover of Italian operator Wind, and Cable & Wireless’s purchase of Energis in the UK. Meanwhile Denmark’s largest telecoms group, TDC, has been targeted by two private equity consortiums.

Vodafone, the world’s biggest mobile telecoms operator, was an early proponent of consolidation in European telecoms. Its early acquisitions included US carrier Airtouch, Mannesman AG, Eircell, Portugal’s Telecel, and content company Vizzavi. It also owns stakes in Cegetel and Swisscom Mobile and has bought out many of its international subsidiaries, including those in Japan and Spain.

The mobile group just last week revived its interest in India with the purchase of a 10 per cent stake in Bharti, the country’s largest mobile phone operator. Vodafone indicated it plans to build a larger stake in Bharti, and the fast-growing India market is looking increasingly attractive to European telecoms groups facing stagnant growth in their domestic markets.

Copyright The Financial Times Limited 2019. All rights reserved.

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