Financially-powerful Telefonica, the world's fifth-largest telecoms company by market value, said it would pay 200 pence per share for the British-based firm - a 22 percent premium to O2's closing share price on Friday.
Shares in O2 surged by over 25 percent to a record 206-3/4p as the market laid bets on whether the offer, Europe's highest all-cash bid on record, would flush out a counter-bid from former O2 suitors such as Germany's Deutsche Telekom.
"Do I think someone else will come to the table? Absolutely," said Deutsche Bank analyst Gareth Jenkins, adding that Deutsche Telekom could pay more with a cash-and-share bid.
A Frankfurt-based dealer put the chances of a German counter-bid at 50 percent. Deutsche Telekom, which aborted exploratory talks with Dutch peer KPN about a possible joint O2 bid in August, declined to comment.
O2, Europe's sixth-largest mobile phone company which owns assets in Britain, Ireland and Germany, is one of only a few independent pure mobile phone operators and has long been tipped as a likely target to help trigger a new telecoms gold rush.