O2 is Europe's sixth largest mobile phone group

Since Telefonica, Spain's biggest telecoms group, made its bid on Monday, 02 share have shot up more than 25%.

Investors had hoped for rival offers, especially after Telekom and Dutch group KPN held abortive talks with 02.

O2's shares now trade above their offer price and Telekom says a bid would "not be in the interests of shareholders".

Shares in Telekom, which already owns the T-Mobile carrier in the UK, went up 2.6% in response to the news.

With both KPN and Telekom out of the running, Telefonica now looks very likely to succeed. Its bid has already been backed by O2's board.

If the tie-up goes ahead and regulators approve, the resulting firm would have 116 million mobile phone users and a 16 percent market share of revenue in Europe's five biggest mobile phone markets.

Telefonica is strong in Latin America, but has not had any presence in the UK and Germany, where O2 has a solid market share.