O2 lifts guidance as bid rumours mount

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O2 refused to be drawn on its future as an independent mobile operator on Tuesday as it lifted its full-year guidance for its key UK and German businesses.

The company, which also runs a network in Ireland, has been the centre of take-over speculation since it was demerged from BT in 2001 because of its lack of scale relative to its rivals and its strong position in the UK market.

David Finch, chief financial officer, on Tuesday hailed O2 as one of the “winners” in the UK market, continuing the theme set by Peter Erskine, chief executive, earlier this year when he suggested one of the five network operators could fail in 2006 as the fierce competition took its toll.

But Mr Finch said it was unclear whether consolidation would reduce the number of operators. “We wait with interest to see what happens to the financial performance, and indeed the remedies proposed by the owners for the weaker players,” he told analysts in a conference call. “It’s difficult to say when something might happen or what it might be.”

Bid rumours have intensified around O2 in the past few months amid a wave of acquisitions in the European telecoms market, culminating in confirmation from Germany’s Deutsche Telekom and Holland’s KPN last month that they had held exploratory talks about a joint bid but decided against making a move.

O2’s share-price performance has been driven by the bid rumours, and has risen by more than a quarter since the beginning of the year, outperforming the FTSE-100 by 12 per cent.

The shares rose 2½p on Tuesday to close at 155½p after the company raised full-year guidance in a trading statement ahead of its interims in mid-November.

O2 said revenue growth in the UK would come in between 6 and 9 per cent, instead of mid-single digits. This represented a slight reverse from earlier this year when O2 was forced to lower much higher revenue forecasts out in the market.

In Germany, the company’s growth engine where it is level-pegging with KPN’s subsidiary for third spot behind Deutsche Telekom’s T-Mobile and Vodafone, O2 said it now expected earnings before interest, tax, depreciation and amortisation margins in the “low-20s” against previous guidance of “around” 20 per cent.

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