Following BT’s confirmation yesterday that it was in talks with Telefonica-owned O2 regarding a takeover, a Spanish newspaper report today claims that the British fixed-line incumbent will bid €14.1bn for the mobile operator.
The consideration will…
Following BT’s confirmation yesterday that it was in talks with Telefonica-owned O2 regarding a takeover, a Spanish newspaper report today claims that the British fixed-line incumbent will bid €14.1bn for the mobile operator.
The consideration will be made up of €6bn in cash and 20% of BT’s share capital which equates to around €8.1bn, according to El Confidencial citing sources.
Analysts have estimated the value of O2 lower than the El Confidencial report, in the region of €11bn to €12bn.
A €14.1bn price tag would be less than the £17.7bn Telefonica paid for O2 in 2006, which came after BT separated the mobile unit into a separate listed company in 2001.
Telefonica is reported to have put together an 18-page document detailing the terms of the transaction and the cost savings that a BT-O2 merger would bring.
Both BT and Telefonica declined to comment on the report.
Yesterday, BT said it had received expressions of interest from shareholders in two operators, including O2, regarding transactions where BT would acquire their UK mobile business. The other operator is widely reported to be EE.
Commenting on the deal talk in a note to investors, Mitsubishi UFJ analyst Rick Mattila said: “A stronger BT would present a problem in the UK market for Vodafone, as well as to whichever of the two – O2 or EE – that BT does not partner with.”
“This could then act as a trigger for further transactions, including alliances with content owners and further content rights acquisitions by other players in the sector. Vodafone could look at content or cable assets in the UK in response, either in the form of acquisitions or joint ventures.”
RBC Capital Markets analyst Michael Bishop said that BT was in a strong position.
“With two operators potentially looking at selling their mobile asset and [BT’s] ability to launch [a consumer mobile offering] independently through their MVNO agreement with EE, we believe BT is in the driver’s seat and the risk of overpaying for a mobile asset is reduced.”
Bishop said standalone MVNO economics for fixed-line players have been clearly proven in other European markets as highlighted by the success of Belgium’s Telenet and Spain’s Jazztel.
However, Bishop said the acquisition of O2/EE at the right price could be accretive.
“We believe BT is the best option for EE and O2 to potentially combine with, whilst Talk Talk the distant second given its relative lack of infrastructure versus BT and scale, likely leading to lower synergies and more investment requirements for EE or O2 at a time when both parents want to de-equitise investments.”
In an interview with TelecomFinance last month Gervais Pellissier, who heads up Orange’s European operations outside of France and oversees its interest in EE, singled out the route BT takes to quad play as being key to potential convergence in the UK.
Commenting on the potential for an EE IPO, Pellissier said: “I think the question of the IPO is also linked with fixed-mobile convergence in the UK. If we think fixed-mobile convergence is not something that needs to be done rapidly then we might reopen the IPO project.
“If, on the other hand, we think fixed-mobile convergence will really start next year, then we might first work on partnership co-operations, maybe consolidation – I do not know – rather than trying to prepare an IPO.”
