updated 10/31/2005 7:43:28 AM ET 2005-10-31T12:43:28

Telefonica SA of Spain announced Monday that it has agreed to buy the mobile phone company O2 PLC in a 17.7 billion-pound ($31.4 billion) cash deal that it said would help expand its presence in two of Europe's largest markets, the U.K. and Germany.

Peter Erskine, chief executive of O2, said two companies operated in different geographical areas and that was a strong reason for recommending the deal.

"It's ... good for customers. They have no overlapping territory, so they will be able to offer our customers better roaming and better services around the world," Erskine told British Broadcasting Corp. radio.

"Finally, it's very good for our people. Because there's no overlapping territories, we can really build on what we've got, as opposed to having to integrate and rationalize jobs."

The deal follows Telefonica's 2.75 billion euro (US$3.32) acquisition of a majority stake in Czech operator Cesky Telekom earlier this year as it expands in Europe.

Telefonica agreed to pay 200 pence (euro2.94; US$3.55) per share, a 22 percent premium over O2's closing price on Friday. Shares in O2 gained 28 percent to 204 pence (euro3.00; US$3.62) in trading Monday on the London Stock Exchange.

O2 and its subsidiaries provide service to nearly 25 million customers in Britain, Ireland and Germany, where the company says it is the fastest-growing mobile telephone operator. O2 was created in 1971 from the mobile telephone operation of BT PLC, Britain's largest telecommunications company.

Erskine said the deal could be completed by January or February if shareholders approve.

Telefonica had around 145 million customers in June and 173,000 employees.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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