British fixed-line incumbent BT has signed an exclusivity agreement with Deutsche Telekom and Orange to buy their mobile joint venture EE.
The non-binding terms of the contract would see BT pay an enterprise value of £12.5bn (US$19.6bn) for EE, which…
British fixed-line incumbent BT has signed an exclusivity agreement with Deutsche Telekom and Orange to buy their mobile joint venture EE.
The non-binding terms of the contract would see BT pay an enterprise value of £12.5bn (US$19.6bn) for EE, which the continental giants own on a 50-50 basis, in cash and stock.
EE is currently the UK’s largest mobile operator, with a 33% market share, followed by Telefonica’s O2, Vodafone and Hutchison Whampoa’s 3.
If the deal goes through, Deutsche Telekom would hold a 12% stake in BT, while Orange would own a 4% interest, according to the UK operator.
In a separate statement, Orange said it would be receiving a higher proportion of cash to preserve an equal split of the net proceeds from the sale.
A deal would allow the French incumbent to cut its debt, which stands at around €31bn, and finance its expansion plans, including the acquisition of Spanish fixed-line operator Jazztel.
BT said it had a range of options to fund the cash portion of the deal and would ensure it kept its conservative financial profile.
The exclusivity period will last several weeks to allow BT to complete due diligence and final negotiations.
The fixed-line company noted it will continue to pursue its plans to launch an MVNO while the talks with EE are taking place in case the negotiations do not result in a deal. The telco was also in talks with Spanish incumbent Telefonica to buy O2, but has plumped for its larger rival.
Any deal, which will be subject to regulatory clearance and approval from BT’s shareholders, would enable the operator to return to the mobile sector, nine years after selling O2 to Telefonica for £17.7bn.
It could also mark the beginning of a convergence shift in the UK market, where triple-play services have so far been the norm.
BT expects a deal to generate significant synergies, but did not disclose a figure. It said savings could be achieved through network and IT rationalisation, back-office consolidation and savings on procurement, marketing and sales costs.
The operator also plans to generate revenue synergies through selling fixed-line services to EE customers, who do not currently take a service from BT, and by accelerating the sale of converged fixed-mobile services to BT’s existing consumer and business customers.
EE has 24.5 million direct mobile customers and reported adjusted EBITDA of £1.6bn for the 12 months to 30 June 2014.
In a statement, Thomas Dannenfeldt, chairman of EE’s board of directors and CFO of Deutsche Telekom, said: “We firmly believe that convergence is the future of telecommunications in Europe. Customers want fixed-mobile converged services from a single provider.”
“The proposed transaction with BT offers the chance to further develop our superbly positioned mobile business engagement in the UK and to take part in the outstanding opportunities of an integrated business model.”
