Li Ka-shing's Hutchison Whampoa has agreed to buy Telefonica's British mobile unit O2 for up to £10.25 billion, as Asia's richest man makes his boldest bet yet to revamp his European telecoms business.
Hutchison already operates the Three Mobile network in Britain.
Buying second-ranked O2 from the Spanish group in Li Ka-shing's biggest ever takeover will make it the top mobile operator in the country.
The proposed O2 deal comes just two weeks after the Hong Kong tycoon undertook a major overhaul of his businesses.
This will be split into two listed companies, one focusing on property and the second on telecommunications, ports, infrastructure and others.
The revamp will boost Hutchison's acquisition firepower by about $7 billion as it spins off its property assets to Cheung Kong Holdings.
The deal between Three Mobile and O2 would mark the latest move towards telecoms consolidation in Britain, where the market is split between four mobile network operators and four separately owned fixed-line and broadband providers.
While the deal will attract scrutiny from competition authorities, European regulators have allowed the number of telecoms operators in countries including Ireland and Austria to shrink from four to three through mergers and acquisitions.
The deal marks Li's biggest ever acquisition, overtaking Hutchison's $7.5 billion purchase of Britain's Northumbrian Water Group in 2011, according to Thomson Reuters data.
Hutchison said in a statement that it had "agreed to enter into exclusive negotiations with Telefónica SA over a period of several weeks" for the potential acquisition.
It said it had agreed to pay an indicative price of £9.25 billion, with another £1 billion in "interest sharing payments" should the combined business reach certain cash flow targets.
Hutchison will fund the deal with a £6 billion bank loan. The company is in talks with private equity firms and others to bring in minority partners, who would be offered not more than a 30% stake, it added.
In December, former state monopoly BT entered exclusive talks with the owners of EE, Britain's biggest mobile operator. BT had preferred EE over O2, which was acquired by Telefonica in early 2006 and has about 22 million subscribers.
Reuters reported in November that Hutchison, whose Three is Britain's smallest mobile network, was waiting in the wings to buy whichever group BT spurned.
Three Group Europe reported total revenue of $4 billion for the six months ended June, 2014, a 3% rise from a year ago.
It operates businesses in Italy, Britain, Sweden, Denmark, Austria and Ireland, where last year it bought O2 Ireland from Telefonica.
In Asia, Hutchison has mobile operations in Indonesia, Vietnam and Sri Lanka.
Telefonica had said in November the British market was a core one for the company, but it had set as higher priority on reducing its big debt pile and protecting a strong dividend.
It also needed fresh cash to consider potential acquisitions in Brazil, its biggest market along with its home country, where it is investing massively to build an optic fibre network.