June 24, 2013 / 6:36 AM / 4 years ago

REFILE-UPDATE 2-Telefonica sells O2 Ireland to Hutchison's 3 for $1 bln

* Combined unit would be second to Vodafone in Ireland

* Deal subject to regulatory approval

DUBLIN, June 24 (Reuters) - Indebted Spanish group Telefonica has agreed to sell its O2 Ireland mobile business for 780 million euros ($1 billion) in cash to Hutchison Whampoa’s local unit 3 Ireland, it was announced on Monday.

The sale to Hutchison, which is subject to regulatory approval, includes an additional deferred payment of 70 million euros if certain financial targets are achieved.

In the past decade Hutchison has built a presence in six European markets, including Britain and Italy, but has struggled to make a profit because it remains smaller than domestic rivals.

Hutchison is seeking to remedy that and last year bought a competitor in Austria as well as entering merger talks with Telecom Italia over its local unit 3 Italia. .

If approved the Irish deal will combine Ireland’s second largest mobile operator behind Vodafone, with Hutchison’s 3, the third largest operator, and take 3 Ireland’s market share to 37.5 percent with 2 million active subscribers.

The combined firm will have 120 stores and 1,300 staff in Ireland, whose domestic economy continues to stagnate, five years after the economy collapsed when a housing bubble burst.

The two companies had combined revenues of 803 million euros in 2012.

For Telefonica, which has been hit hard by the downturn in its home market where 27 percent of the workforce is unemployed, the sale is the latest in a string of sales of non-core assets as it aims to cut its debt to 47 billion euros by the end of this year from 52 billion at the end of March.

The group already sold some Central American assets in March for $500 million and could consider a sale of its Czech business, analysts have said.

Analysts at Espirito Santo said the O2 Ireland sale was a good move for Telefonica despite the sale price being a 10 percent discount to the unit’s fair value since the business was small and not central to its strategy.

“This should enable Telefonica to reduce its leverage by approximately 1 percent at the end of 2013,” they said in a note.

Barclays and Bank of America Merrill Lynch advised Telefonica on the deal.

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