Telefonica may not have abandoned plans to seek a merger for its O2 UK business, despite the Spanish incumbent being heavily tipped to float a minority share of the unit in an IPO.

The operator has been linked with a bid to tempt Liberty Global into a merger with O2 almost a year after an attempt to combine its UK division with CK Hutchison’s 3 UK was blocked by the European Commission, Seeking Alpha reported, citing an article in Spanish business daily Expansion.

Liberty Global already owns cable operator Virgin Media in the UK and an acquisition or merger with O2 would round out its service offering by providing direct access to mobile services, which Virgin currently offers on an MVNO basis using BT subsidiary EE’s network.

A deal to combine O2 was thought to have effectively been taken off the table by the EC’s decision last year. While CK Hutchison initially indicated it would appeal the EC’s ruling, Telefonica began considering other options for the UK unit, including an IPO or sale.

The operator in September was tipped to be lining up an IPO covering a minority stake of around 30 per cent of O2. Telefonica hired UBS, Morgan Stanley and Barclays to coordinate an IPO, with O2 expected to be valued at around £10 billion.

Debt reduction
Such a deal would ease the financial burden on Telefonica, which is battling to reduce a debt pile of around €50 billion, while still allowing it to sell the controlling stake at a later date. Liberty Global was tipped as one such potential buyer of the majority holding.

Telefonica in February announced plans to sell up to 40 per cent of its Telxius infrastructure unit to KKR Group, a global investment company, as part of its efforts to cut the debt.

It remains to be seen if Liberty Global would be interested in merging with O2.

While Liberty successfully completed a merger of its Netherlands cable business with Vodafone Netherlands’ mobile unit in August 2016, Liberty CEO Mike Fries in November told delegates at a Morgan Stanley conference the deal was not a template for future agreements. In January, Fries reiterated his stance, though referred directly to further deals with Vodafone rather than other operators.