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BT Finalises GBP12.5bn Acquisition of EE’s Mobile Network in the UK

Thursday, February 5th, 2015 (7:55 am) - Score 1,610

After several weeks of exclusive talks BT has today announced that they’ve “agreed definitive” terms to acquire national mobile operator EE for £12.5bn, which is to be payable as a combination of cash and new BT ordinary shares issued to both of EE’s joint owners Deutsche Telekom (Germany) and Orange (France).

The transaction is naturally still subject to approval by the shareholders of BT and clearance by the relevant regulatory and competition authorities, although short of any problems the process is expected to close by March 2016. Once complete it’s noted that Orange will hold a 4% stake in the new business (plus around £3.4bn in cash) and Deutsche Telecom will hold 12% (plus a seat on the board).

In one fell swoop BT has thus gained itself a significant foothold in the United Kingdom’s mobile market, which will be a huge boost to their plans for re-entering the consumer mobile market this spring with a new range of quad-play broadband, TV, phone and mobile bundles.

EE currently has 31 million customers of which 24.5 million are direct mobile customers (7.7 million use their new 4G network) and today’s announcement also confirms that their BT-based fixed line broadband subscriber base has increased to 834,000 (up sharply by +41,000 in Q4 2014, which is better than the +18k in Q3 and +30k in Q2).

Gavin Patterson, BT’s CEO, said:

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.”

Olaf Swantee, EE’s CEO, 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.”

At present EE owns a huge swathe of UK radio spectrum (the largest of any single mobile operator) and its 4G network is significantly more advanced, with superior coverage, than most of their rivals; although Vodafone aren’t too far behind the curve in terms of technology.

Never the less the fact that EE and BT are both considered to be such significant primary players in their respective markets also means that the regulators are much more likely to cast a questioning eye over today’s transaction. At the same time EE is still in the throes of finding its feet after their last merger, which might add some complexity to BT’s acquisition.

Lest we not forget the next question of branding and whether BT will retain the now established EE name, which might help it to seem less dominant, or put its own title on the front. Another interesting result of today’s move might also be that EE’s newly launched broadband TV service looks set to be replaced by BT’s own solution (see below), which risks creating some initial confusion among early adopters.

Meanwhile Three UK are still in final talks to buy O2 (here) and we’re expecting an announcement on that one in the not too distant future, even though we’re not entirely sure that Three’s move makes as much sense as BT’s gobble of EE.

Elsewhere Sky Broadband has just reached an MVNO deal with O2 (here), although their mobile solution won’t be ready until next year, and Vodafone also plan to re-enter the consumer home broadband market this spring in order to tackle BT’s growing dominance. In short, the United Kingdom is about to have one less primary mobile operator and yet another significant telecoms market shake-up.

Key Points from Today’s Sale

• The cash consideration will be financed by a combination of new debt financing and approximately £1bn from the placing of new BT shares. The Equity Placing will be launched in due course.
• Following the Transaction and Equity Placing, Deutsche Telekom will hold a 12% stake in BT and will be entitled to appoint one non-executive member of the BT Board of Directors. Orange will hold a 4% stake in BT.
• BT expects to achieve combined operating cost and capex synergies of around £360m p.a. in the fourth full year post Completion. This is equivalent to a net present value of around £3.5bn before integration costs or around £3.0bn after integration costs.
• BT expects to generate revenue synergies by providing a full range of communications services to the combined customer base. This includes BT selling its broadband, fixed telephony and pay-TV services to those EE customers who do not currently take a service from BT. BT also expects to accelerate the sale of converged fixed-mobile services to BT’s existing consumer and business customers and offer new services, using both companies’ product portfolios, skills and networks. BT expects to generate revenue synergies with a total net present value of approximately £1.6bn.
• The Transaction values EE at a multiple of 6.0x 2014 EBITDA and 9.6x 2014 OpFCF, adjusted for the net present value of the operating cost and capex synergies.
• The Transaction is expected to be accretive to FCF per share in the first full year post Completion. As a result of EE’s high depreciation charge, reflecting historical network investment, the Transaction is expected to be accretive to Adjusted EPS one year later.
• The cash return on investment of the Transaction is expected to comfortably exceed BT’s cost of capital in the third full year post Completion.
• The Transaction is subject to approval by the shareholders of BT and merger clearance, in particular from the UK Competition and Markets Authority. It is expected to complete before the end of BT’s 2015/16 financial year.

The footnote to today’s announcement further reveals that BT’s Transaction is expected to generate “significant operating cost savings and additional capex savings. Together these are expected to reach £360m p.a. in the fourth full year post Completion. Integration costs to achieve these are expected to be around £600m. The savings are equivalent to a net present value of around £3.5bn before integration costs or around £3.0bn after integration costs“. More details of the transaction can be found further down in today’s press release.

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By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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35 Responses
  1. Ignitionnet says:

    A masterful move on the part of BT. They’re back into a market they would have ideally never left had fate and overreaching themselves abroad not forced their hand.

  2. Kits says:

    Something I didn’t want since I made sure I left everything BT related due to offshore support which I am 100% against.. Does this mean I can cancel my remaining contract with EE if BT move support offshore?

    Now looking for a new mobile network to move to… as this will go down just like my FTTC does everytime I have to raise a fault on performance whioch all comes up as exchange related..

    1. sentup.custard says:

      How long’s your contract for, Kits? If I read it right it won’t happen until March 2016, so unless you have over a year still to run on the contract you’d be able to just cancel when it expires without any argument.

    2. DTMark says:

      EE has a customer service department?

      It would be a bold move to rebrand it as BT.

      BT’s advertising, if I interpret it correctly, generally features young twenty-somethings and is trying to be a bit more “trendy” than in the past. Perhaps because twenty-somethings don’t always see the point in having a landline at their first home?

      However I suspect it’s a bit of a push to get BT to appear “trendy” as such and I’d have thought the name change and BT’s historical reputation could see customers leaving in droves.

  3. “…and overreaching themselves abroad …”

    I wonder how long it will be before the big bosses get too big for their collective boots and succumb to temptation again? 🙂

  4. Kits says:

    More like overseas owners of Telecoms moving more into taking over BT they get shares in the company.. Never trust them they will look to take over BT in the end feet will now be under the table….

    1. Ignitionnet says:

      An attempt to do this would’ve been made a few years back when BT’s share price had tanked. Not going to happen.

  5. DTMark says:

    “BT expects to generate revenue synergies by providing a full range of communications services to the combined customer base. This includes BT selling its broadband, fixed telephony and pay-TV services to those EE customers who do not currently take a service from BT.”

    I rather wondered if it might be the case that the direction is to attempt to force people who don’t have a landline, because it offers no useful products or services, to have one.

    I suspect my forthcoming emigration to Amsterdam is timely. Going back down to Three’s speeds would be do-able, but painful.

    1. sentup.custard says:

      As you know, Mark, I also use EE and don’t have a landline. Three’s speed is acceptable here, so I’d consider switching to them, as I really do not want to be a BT customer – but I think Three’s “customer service” is based overseas, isn’t it? Like Kits, I’m very much against that.
      I’m sitting tight for now, no need to make a rushed decision, and crossing my fingers that the competition people throw it out, but I think that’s unlikely, so I think at some stage I’ll have to decide which is the lesser of two evils.

    2. DTMark says:

      I suspect what would happen is the same thing that led to our last two landlines being cancelled – a billing dispute. BT’s billing is completely dysfunctional, you get a bill due for payment that day or next allegedly generated about 10 days ago, then the next day, a letter about a late payment charge before you even opened the first one. That sort of thing. The first time I moved to Talk Talk (really) and the second, we told them to shove their landline and it didn’t complete the contract term.

      Though as it turned out, that was the best thing, so the landline has been unused since then (7 years) as it prompted us to seek out superior competition (Three, at the time) and brought us better broadband speeds.

      VOIP is crystal clear and perfect over 4G – we have a landline number and a pair of DECT handsets. Now and again it costs a fiver to “auto top up”.

      On the one hand, BT could provide a powerful set of services if done right, but BT has never been a forward-thinking company, is rather hapless, has one of the worst reputations for customer service I can think of, and their emphasis has always been on monopoly power as opposed to quality products or services which is why it’s so under-invested and horrendously backward.

      I pity the people staying here 😉

  6. Owl. says:

    No doubt once BT take over at EE then prices will go up to subsidise BT’s baby(BT Sport).

  7. Jon Roberts says:

    hopefully my shares soar on this news 🙂

    1. Kits says:

      Hopefully if they reach my target they go also I didn’t buy them they were left me when my mother died..

  8. GNewton says:

    I guess its time to leave EE and to find another mobile provider.

    1. FibreFred says:

      Guess so , what puzzles me is how you avoid calling people that use a Bt line ? Do you quickly check before you get into the conversation and if they are using Bt you hang up? 🙂

    2. No Clue says:

      Maybe he does not phone people, many people hardly use a phone for phone calls these days especially a landline. Many just send text messages or email via their mobiles…. I realise that may come as a shock to a BT employee though who probably thinks all the phone boxes had also vanished due to a big monster that likes to eat red metal and glass boxes.

    3. fastman2 says:

      correct most use land line for broadband !!!!

    4. No Clue says:

      Which has nothing to do with him calling people.

    5. GNewton says:

      We don’t use BT.

      Most of our local voice calls (that is, inside the UK) involve mobile numbers, these days it’s quite rare to find someone using a landline for voice calls, well, maybe Freddy still does 🙂

    6. No Clue says:

      There was a story on here last year i think that most people do not even know their landline number. I guess its just another example of him living in the past with a copper fetish.

  9. No Clue says:

    Cue the mass exodus from the BT borg hive 😀

  10. Bob says:

    FTTC cabinets becoming mini-3G stations? Would be awesome.

    1. No Clue says:

      Yep that would congest them even more quite nicely.

    2. TheFacts says:

      Not true.

    3. FibreFred says:

      Interesting idea wouldn’t it need some height tho for a 3G signal ?

    4. No Clue says:

      So its not true BT will attempt to use them for outdated 3G, thats good news at least.

    5. TheFacts says:

      It’s not true they will congest.

    6. No Clue says:

      Oh do please explain more about how you know that and the bandwidth requirements that would be required in advance.

      On second thoughts dont bother you have been inane enough already.

    7. TheFacts says:

      it’s called network planning and design.

    8. GNewton says:

      @TheFacts: “It’s not true they will congest.”

      Care to provide some evidence? Do you now use how to use Google?

    9. TheFacts says:

      As said before, covered by network design.

    10. No Clue says:

      LOL so the “network design” included the ability in the first place to even use cabinets as “mini-3G stations”? Oh really, thats another bit of highly amusing new insight LOL. You really do love stupid questions, responses and in general just being dumb eh?

    11. TheFacts says:

      Do you have any engineering knowledge or experience?

    12. No Clue says:

      Opps no correction you called yourself that on the 9th.

    13. No Clue says:

      “Do you have any engineering knowledge or experience?”

      More than you obviously “neil” (at least thats what you have now started to call yourself).

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