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BT in exclusive talks on £12.5bn EE deal
From the Financial Times of Mon, 15 Dec 2014 18:05:13 GMT
An EE mobile phone store in London©Bloomberg

BT has entered exclusive negotiations to acquire EE for £12.5bn, in a deal that would combine the UK’s largest fixed line and wireless networks — creating a dominant UK telecoms group.

Its decision comes after it oversaw an unusual “reverse auction” process in recent weeks, in which the owners of both EE and O2 competed to sell their businesses.

On Monday, BT confirmed that it intended to pay £12.5bn in cash and shares for EE — a record-breaking amount for the former state-owned British telecoms incumbent. If the deal proceeds, it will represent a remarkable return to the mainstream consumer mobile market for BT, after it decided to spin off O2 in 2001.

A combination of BT and EE would have a leading position in the provision of both fixed-line broadband and mobile contracts in Britain — enabling BT to pursue its strategy of shaking up the British telecoms market by offering packages of TV, home broadband and mobile telecoms.

EE was only formed five years ago from the merger of Deutsche Telekom’s T-Mobile and the UK operations of France’s Orange. Under the proposed deal, it will bring more than 25m mobile customers to BT’s existing consumer business, many of whom still use the Orange and T-Mobile brands.

Deutsche Telekom and Orange, as EE’s owners, will retain a stake in the combined group, which will have a market capitalisation of around £44bn. On completion of the deal, Deutsche Telekom will hold 12 per cent, and be entitled to appoint one board member. Orange will hold a 4 per cent stake.

BT’s decision will frustrate Telefónica, which had also been in talks about selling its O2 network to the UK group. Telefónica will now be forced to consider other options — which could include a deal with Hutchison Whampoa’s Three or TalkTalk to add scale to its UK business. All parties declined to comment.

Analysts said BT could consider a rights issue or a placing of shares to fund the £6.3bn in cash it would need to fund the transaction, alongside bond issuance and bank debt. They added that the deal should be cleared by regulators, possibly with BT being made to sell some mobile telecoms spectrum.

BT has been attracted to EE by the extent of the 4G coverage it can offer, according to one person familiar with the talks, as it regards the ability to provide the fastest mobile internet speeds as complementary to its fibre broadband offering.

EE is the largest 4G operator in Europe, and has about 6m customers using its superfast mobile service. It 4G network covers about three-quarters of the UK.

BT will also acquire EE’s large chain of high street stores to sell its packages of telecoms and TV entertainment, although it will also take the leases on its balance sheet as a liability.

EE, which was known as Everything Everywhere after the T-Mobile and Orange UK merger in 2010, had been a candidate for a sale or flotation since 2012. Its owners have wanted to sell at least a partial stake in the business to raise funds for other business interests around the world.

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