BT buying EE for GBP12.5bn; definitive terms agreed

5 Feb 2015

British fixed line incumbent BT has agreed definitive terms to acquire the UK’s largest cellco by subscribers, EE, for GBP12.5 billion (USD18.9 billion). In announcing the development, the telco said it expected the combination of EE and BT to provide customers with ‘innovative, seamless services that combine the power of fibre broadband with Wi-Fi and advanced mobile capabilities’.

As per the terms of the deal, the consideration for EE will be payable as a combination of cash and new BT ordinary shares issued to both of the mobile operator’s current parent companies, Deutsche Telekom (DT) and Orange Group. This cash consideration will reportedly be financed by a combination of new debt financing and approximately GBP1 billion from the placing of new BT shares, with the Equity Placing to be launched ‘in due course’. Following both the transaction itself and the Equity Placing, DT will hold a 12% stake in BT and be entitled to appoint one non-executive member of the BT Board of Directors, while Orange Group will hold a 4% stake in the British company. The deal remains subject to approval by BT shareholders and merger clearance, in particular from the UK Competition and Markets Authority, and is expected to be completed before the end of BT’s 2015/16 financial year (March 2016).

On the back of the deal BT has said it expects to achieve combined operating cost and CAPEX synergies of approximately GBP360 million per year in the fourth full year post-completion, while it will generate revenue synergies with a total net present value of approximately GBP1.6 billion by providing a full range of communications services – including broadband, fixed voice and pay-TV – to the combined customer base, including those EE customers who do not currently take a service from BT. Further, BT will also accelerate the sale of converged fixed-mobile services to its existing consumer and business customer.

BT’s chief executive Gavin Patterson said of the acquisition: ‘This is a major milestone for BT as it will allow us to accelerate our mobility plans and increase our investment in them. 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. Consumers and businesses will benefit from new products and services as well as from increased investment and innovation. The deal provides an attractive opportunity for BT to generate considerable value for shareholders, with significant operating and capital investment efficiencies supported by our tried and tested cost transformation activities. The enlarged BT will offer significant opportunities for employees as we lead the creation of a world-class digital infrastructure for Britain.’ Meanwhile, EE CEO Olaf Swantee added: ‘Joining BT represents an exciting next stage for our company, customers, and people. In the last few years alone, we have built the UK’s biggest, fastest and best 4G network, significantly advancing the digital communications infrastructure for people and businesses across Britain. 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.’

United Kingdom, BT Group (incl. Openreach), Deutsche Telekom (DT), EE, Orange Group