Telefonica price surges 4% after $12.6 billion sale of O2 to Hutchinson is unblocked

Telefonica price surges 4% after $12.6 billion sale of O2 to Hutchinson is unblocked
  • EU's highest court unblocks the proposed sale of Telefonica's O2 to Three UK for $12.6 billion
  • The EU competition enforcers blocked the deal in 2016 in competition grounds
  • Telefonica stock price surges 4.35%, eyes higher levels

Shares of Telefonica (EBR: TFA) surged 4.35% in today’s trading session after the Luxembourg-based General Court unblocked the sale of the UK’s O2 to Three UK, which is owned by CK Hutchison Holdings (OTCMKTS:CKHUF) for $12.6 billion. 

Fundamental analysis: Hutchinson wins legal challenge against the EU

The Hong Kong-based multinational conglomerate Hutchinson won the legal challenge against an EU antitrust decision to block the takeover of the UK’s O2. Three UK, which is owned by Hutchinson, agreed to pay $12.6 billion in 2016 to buy O2 telecom from Spain’s Telefonica. 

“The commission takes note of the General Court’s decision annulling the commission’s decision of 11 May 2016 prohibiting Hutchison’s proposed acquisition of O2 UK. The commission will carefully analyse the judgment,” the statement reads. 

The EU competition enforcers blocked the deal in 2016 by arguing that the planned decrease in the number of telecom operators will hurt competition. According to Hutchinson, the commission had made “several errors of law” and could not prove that the expected merger will hurt prices.

“The commission’s approach has unfortunately acted as a brake on, or in a number of cases prevented, network improvements and consumer benefits that can be achieved from mobile mergers,” the company said.

This is likely to be a landmark decision by the EU’s top court and a serious blow for Margrethe Vestager, the EU’s competition commissioner.

“This landmark judgment represents a significant setback for Commissioner Vestager. Challenging four-to-three consolidation in the telecommunications sector has been a central feature of merger enforcement under her watch and the judgment will be studied closely to see the extent to which it may allow further consolidation in the sector,” said Nicholas Levy, a Brussels-based partner at law firm Cleary Gottlieb.

Technical analysis: Telefonica stock price attempting to break resistance

Shares of Telefonica closed the day 4.35% in the green to record the best day in seven weeks after the EU’s top court announced its decision in the Hutchinson case. The weekly gains have now totalled to nearly 6% as the telecom’s stock price recovers from printing the all-time low at €3.53 in March.

Telefonica stock daily chart (TradingView)

As seen in the chart above, shares of Telefonica are now attempting to break outside of the descending wedge. The buyers are now likely to aim for higher levels with a trip to €5.00 now a high possibility if today’s break is confirmed on a weekly basis. 

Summary

Telefonica stock price closed the day more than 4% in the green after the EU’s top court unblocked the agreed sale of O2 to Three UK for $12.6 billion. 

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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