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By Bloomberg

Hutchison Whampoa Ltd. is exploring a purchase of Telefonica SA’s wireless unit O2 in the U.K. as billionaire Li Ka-shing’s company weighs expansion in Europe, according to people familiar with the matter.

Other options Hong Kong-based Hutchison is studying include merging its Italian mobile unit with a local competitor, the people said, asking not to be identified because the deliberations are private. The U.K. plans are at an early stage and no deal is imminent, said the people. Hutchison, which owns the Three mobile network, may pay as much as 9 billion pounds ($13.6 billion) for O2 U.K., the Sunday Times reported over the weekend.

The U.K. is primed for more deals after wireless-market leader EE began exclusive talks last month to be acquired by BT Group Plc, leaving smaller carriers looking for ways to compete. O2 had also been in talks about a combination with BT, and was left out after the former U.K. phone monopoly chose EE.

“Hutchison’s Three as the smallest of all existing U.K. mobile operators, and it needs to build scale,” said Francis Lun, chief executive offficer of Hong Kong-based Geo Securities Ltd. “It makes sense to acquire O2 as Telefonica, which is stuck with debts, is a willing seller.”

Representatives for Hutchison and Madrid-based Telefonica declined to comment.

Business Revamp

Li is consolidating his holdings, which range from Asian real estate to telecommunications businesses across Europe, and is making more acquisitions outside his home market. Last year, Hutchison completed the takeover of Telefonica’s Irish unit for as much as 850 million euros ($980 million) to combine with Three Ireland.

The reorganization of his two main companies, Cheung Kong Holdings Ltd. and Hutchison Whampoa Ltd., would provide Li greater flexibility to do deals in Europe, especially in the U.K. telecoms industry, according to Geo Securities’ Lun.

“The new structure will allow Li to utilize Cheung Kong’s strong cash position as Hutch was inhibited by a high gearing ratio in the past,” he said.

Hutchison Whampoa climbed 0.6 percent to HK$97.7 at 10 a.m. in Hong Kong trading while the benchmark Hang Seng Index dropped 0.4 percent.

Europe’s Share

Telefonica has hired investment bank UBS Group AG to explore options for O2, people familiar with the matter have said. The phone company, which is looking for ways to exit the U.K. to help pay off debts, may also consider selling shares of O2 to the public, according to the Times. Hutchison has hired boutique investment bank Moelis & Co to look for possible deals in the U.K., the newspaper said.

Europe generated half of Hutchison Whampoa’s revenue in the first half, according to data compiled by Bloomberg. Its 3 Group Europe posted sales of HK$31.1 billion ($4 billion) , a 3 percent increase from a year earlier.