Case study for Preparing Corporate Finance Sem 1 Re-sit Examination
(*these are the actual case studies used in the exam)

Case Study Guidelines

In 2005, the Spanish telecom giant, Telefonica made a bid for O2, a British wireless carrier. The bid created headlines for being the second largest ever, all cash offer in telecom history. With consolidation taking place on a major scale in the European telecom sector, Telefonica too looked for a channel for expansion in the booming sector. The case chronicles the expansion strategies of Telefonica and the reasons behind its bid for O2.

Case 1: Telefonica snaps up O2 as European consolidation continues

In a move that will certainly arouse the interest of other European mobile operators, Spanish telecoms giant Telefonica could be about to gain entry to two of Europe's most important markets, the UK and Germany, with its bid to acquire UK-based mobile operator O2 for GBP17.7 billion ($31.3 billion). Under the terms of the deal, Telefonica is offering 200p ($3.53) per O2 share, which represents a premium of approximately 22% over the closing price of the operator's shares of 164.25p ($2.90) on Friday October 28, 2005. The two companies expect to save E293 million ($351 million) a year by 2008 from economies of scale.

More importantly, however, the offer has received the approval from O2's board of directors. Commenting on the deal, Telefonica's chairman, Cesar Alierta, said that the move would boost Telefonica's growth profile, allowing for greater economies of scale and enabling the company to gain exposure within Europe's two largest markets. UK-headquartered O2 was formerly known as BT Cellnet before it was spun off from the BT Group in 2001. Telefonica has revealed that O2 will keep its existing brand, although questions remain over Telefonica's longterm strategy to integrate the unit with its own mobile