O2 to offer customers shares in £10bn float
O2 customers could be offered the chance to buy shares in the mobile operator as its Spanish owner Telefonica looks to develop plans for a £10bn stock market float despite market uncertainty in the wake of the EU referendum. Senior executives are understood to be exploring a customer share offering that would extend the O2 Priority loyalty scheme into the equity market. It normally provides them early access to concert ticket sales, among other benefits.

Following the referendum, Telefonica does not expect to float O2 until around the end of the year, two sources familiar with its thinking said.

It remains possible that O2, which is led by chief executive Ronan Dunne, will be sold to a private equity buyer after an attempt to sell Britain’s number two mobile operator to CK Hutchison, the owner of rival Three, collapsed in May.

The European Commission blocked the merger on concerns it would disadvantage rivals and raise prices. Telefonica is said to favour a stock market float as the route most likely to secure a valuation close to the £10.25bn Hutchison agreed to pay.

The discussions are focused on listing a minority stake that would raise billions to pay down burdensome group debt but allow Spain’s former state monopoly to retain control and significant exposure to the British market. It signalled its intentions last week when it told Spanish investors that the O2 cash flows would be reintegrated with the rest of the group.

O2’s finances had been separated in preparation for a full disposal and the move was also seen in the City as a demonstration to private equity firms that there will be no quick retreat from the UK following the referendum.

Prior to the referendum, more than half a dozen private equity firms had made informal approaches over a potential buy-out of O2, with CVC and Apax Partners seen as the most keenly interested.

The buy-out firms were also courting Sky, which is due to launch a mobile service this year based on the O2 network, in hope of forming a partnership that could allow them to bid more for O2.

“The work going on now is less about ways of selling the business and more exploring the strategic ways to build value in it,” said a source familiar with current discussions around O2.

“Telefonica does not feel there is any short-term need to do anything.

“Selling shares to customers could be a good way of getting them to buy into the O2 brand even more.”

It is understood that Telefonica could seek to bring one or more of the sovereign wealth funds that had planned to invest £3bn in the merger of Three and O2 on board as cornerstone investors in a float. A City source said informal conversations had taken place and at least one of the funds appeared likely to offer to invest, if O2 comes to market.

The original list of funds was made up of Canada Pension Plan, Singapore’s GIC, Caisse de depot et placement du Quebec, a subsidiary of the Abu Dhabi Investment Authority, and the Brazilian investment bank BTG Pactual.

In the meantime, Britain’s decision to leave the EU has created a cloud of uncertainty over day-to-day business in the telecoms industry, particularly as the bloc plays a key role in regulation.

However, subscriptions to mobile and broadband services are seen by investors as providing protection from a potential downturn in consumer spending. O2 declined to comment.