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Spanish giant eyes O2

Mobile phone operator O2 is set to fall to Spain's Telefonica after Germany's Deutsche Telekom refused to enter a bidding war. Telefonica made a recommended offer of 200p a share for O2 on Monday, and the shares rose to 209p as speculation mounted th...

Mobile phone operator O2 is set to fall to Spain's Telefonica after Germany's Deutsche Telekom refused to enter a bidding war. Telefonica made a recommended offer of 200p a share for O2 on Monday, and the shares rose to 209p as speculation mounted that Deutsche Telekom would make a counter-bid. But the German giant said on Wednesday that it wouldn't, and O2's shares slipped back to 198p.

Deutsche Telekom may have been put off by the price. "Telefonica has paid far too much," reckons Jim McCafferty, analyst at Seymour Pierce. The 200p-a-share offer values O2 at 24 times forecast earnings. That's well ahead of the valuations given to other mobile companies, which trade on around 15 times earnings.

With Deutsche Telekom out of the frame, analysts now think a rival bidder is unlikely to emerge. "There are two potential wild-card bids," says Mr McCafferty. "Hutchison and NTT DoCoMo might put their hats into the ring." But many analysts believe that other potential buyers would struggle to justify paying a higher price.

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