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BT and EE agree terms for £12.bn deal


© BT

After several weeks of exclusive negotiations, BT has just announced that it has agreed definitive terms to acquire UK mobile operator EE for £12.5bn, purchasing 100 per cent of its shares from owners Orange and Deutsche Telekom.

The purchase will be a combination of cash and shares in BT, financed by a combination of new debt financing and £1bn from the placing of new BT shares. Deutsche Telekom will hold a 12 per cent stake in BT and will be entitled to appoint one non-executive member of the BT Board of Directors, whilst Orange will hold a 4 per cent stake in the telco.

“This is a major milestone for BT as it will allow us to accelerate our mobility plans and increase our investment in them,” said Gavin Patterson, BT CEO. “The UK’s leading 4G network will now dovetail with the UK’s biggest fibre network, helping to create the leading converged communications provider in the UK.”

By combining 4G mobile and FTTC broadband, BT believes it will have greater scope for future investment and product innovation. It also expects to generate revenue synergies with a total net present value of approximately £1.6bn through cross-selling of its products. In addition, BT expects to achieve combined annual operating opex and capex synergies of around £360m by the fourth full year post completion.

EE is the leading mobile network operator in the UK with 24.5m mobile customers (add in MVNOs, M2M connections and 800,000 fixed broadband customers and this increases to 31m). However, it would lose the top spot if rivals O2 and Three manage to complete their own merger agreement. It also claims the largest 4G customer base of any operator in Europe, with 7.7m subscribers. EE was formed in 2010 from the merger of Orange UK and Deutsche Telekom’s T-Mobile UK. The company recorded revenues of £6.3bn in 2014, has around 13,000 employees and 580 retail stores.

“Joining BT represents an exciting next stage for our company, customers, and people,” said Olaf Swantee, CEO of EE. “Today’s announcement will ensure the UK remains at the forefront of the mobile revolution, bringing even more innovation and investment in world leading connectivity for our customers.”

BT and EE’s owners must hope that the UK competition authorities agree with Swantee. The Transaction is subject to approval by BT shareholders and merger clearance from the UK Competition and Markets Authority. If all goes well, the deal is expected to complete by March 2016.

Orange says the deal represents “an attractive financial proposal for its shareholders, crystallizing the value of the successful creation and development of EE”. Stéphane Richard, CEO of Orange, added that: “this operation will enable us to reinforce our balance sheet, thereby providing us with additional room for manoeuvre across our markets. By retaining a significant stake in BT, we will also stand to benefit from the synergies of this operation that will lead to the creation of the leading convergent fixed and mobile operator in the UK.”

“The transaction is much more than just the creation of the leading integrated fixed and mobile network operator in Europe's second largest economy,” added Tim Höttges, CEO of Deutsche Telekom. “We will be the largest individual shareholder in BT and are laying the foundations for our two companies to be able to work together in the future.”

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