O2 has agreed to be bought by Telefonica for £18bn as the Spanish telco looks to expand its operations into UK and Germany.

Mobile outfit O2 - which split from BT in 2001 - will retain its bubbly brand and keep its HQ in the UK. If all goes to plan and the deal get the thumbs up from regulators, it should be all wrapped up early next year.

But industry watchers are already casting doubt on the deal by suggesting that the tie-up could spark rival bids from other operators.

Most recently O2 has been named as a possible take-over target for Dutch outfit KPN and German giant Deutsche Telekom, and it may be that today's announcement will be enough to flush out a rival offer.

Still, that's all in the future. For now Telefonica reckons that the buyout will give it greater presence in Europe's largest market - Germany and the UK - while delivering costs savings of around £200m a year.

Said O2 chief exec Peter Erskine in a statement: "Since the emergence of O2 as a listed company in 2001, it has enjoyed considerable operational success and, in the process, delivered real value to shareholders.

"This transaction brings together two companies which are growing strongly with highly complementary geographical activities." ®