O2 Investors Ahead of Themselves

The telecom sector is alive with bids at the moment: just recently Holland's Telfort was sold to local rival KPN for over 1bn euro. Italian operator Wind has been snapped up by an Egyptian-led consortium for some 12bn euro. And all the while Spanish group Auna is contemplating accepting a bid from private equity companies.

So it's no wonder that investors reckon that UK mobile group O2 could be next. And why not: the group has "obvious charms", says Mike Monnelly on Breakingviews.com. It has performed well of late, growing rapidly in both Germany and the UK.

Moreover, with Orange, owned by France Telecom, and T-Mobile, owned by Deutsche Telekom, not performing up to standard, snapping up O2 could be the perfect opportunity for either group to employ O2's successful management practices into its own business and "wring out some cost savings" in the process. Both France Telecom and Deutsche Telekom, along with a number of private equity groups have been considered potential bidders.

Yet on Friday brokers poured "cold water" on any takeover rumours, says Yvette Esson in The Daily Telegraph, saying a bid is unlikely. Why? For one, both France Telecom and Deutsche Telekom are concentrating their efforts elsewhere: with the result that neither would have the time nor the finances to bid, says Monnelly.

As for a private equity group, it would need some £4bn of equity in order to snap up O2. That's "too big a mouthful" even for today's giant private equity groups. O2 investors could just be getting ahead of themselves