Canadian Funds In Talks Over £2.8bn O2 Stake

Two of Canada's largest pension funds are in talks about acquiring a multibillion pound stake in the company that is expected to become the UK's biggest mobile communications provider.

Sky News understands that the Canada Pension Plan Investment Board (CPP) and the Ontario Teachers Pension Plan (OTPP) have expressed an interest in buying shares in a newly formed parent of O2 and Three.

The combined group, which will be created if Hutchison Whampoa completes a planned takeover of O2 for £10.25bn, would have an enterprise value of approximately £15bn.

It would carry debts of roughly £6bn, and Hutchison has signalled that it will sell about 30% of the new company - worth in the region of £3bn - to institutional investors.

Sources said on Friday that Hong Kong-based Hutchison was "inching forward" in discussions with prospective buyers of the minority stake.

Offers totalling as much as £5bn had already been received for the roughly £2.8bn of shares, they said, with three or four purchasers likely to be selected.

The discussions remain at a tentative stage and will not result in a definitive agreement until there is certainty that Hutchison's takeover of O2 will take place.

Sovereign funds from Qatar and Singapore have also engaged in talks about backing the tie-up of the two UK mobile networks, as Sky News revealed last month.

A Chinese state fund remains interested but is less likely to be part of the investing consortium, a source said.

The appetite from sovereign investors underlines the continuing interest in UK companies following the Qatari takeover of London's Canary Wharf business district and last month's acquisition of a 9.9% stake in British Airways' parent by Qatar Airways.

Hutchison Whampoa secured a period of exclusivity to negotiate a takeover of O2 with Telefonica, its Spanish parent, in January.

The deal is the second major transaction in the UK mobile sector in quick succession, with BT having announced a £12.5bn takeover of EE - currently the country's biggest network.

The mergers have sparked concerns about the prospect of higher charges for mobile phone customers, with Three's status in the market as a 'challenger' to its bigger rivals seen by analysts as unsustainable if its owner's takeover of O2 is completed.

Sky plc, the owner of Sky News, recently struck a deal with Telefonica UK that will allow it to offer mobile voice and data services for the first time.

Like rivals BT, Vodafone and TalkTalk, the move will enable Sky to provide the 'quad-play' of fixed and mobile telecoms, broadband and pay-TV to its customers.

The O2 purchase is the latest in a series of takeovers led by Li Ka-shing, the Hutchison chairman who is Asia's wealthiest man and who has become the UK's biggest foreign direct investor.

In addition to 3, Mr Li's businesses own the high street retailer Superdrug, the container port at Felixstowe and the Eversholt rail company.

Telefonica had been in talks to sell O2 to BT before the British telecoms group decided instead to pursue talks with EE, which is jointly owned by Deutsche Telekom and France Telecom.