BT has agreed final terms for its £12.5bn purchase of EE, the UK’s largest mobile phone network.
EE’s shareholders, Deutsche Telekom and Orange, will receive a mixture of cash and BT shares with Deutsche Telekom entitled to appoint one non-executive member to the BT Board. It will also hold a 12% stake in BT while Orange will hold a 4% stake.
“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.”
Today’s deal marks a new chapter in BT’s on-off involvement in the mobile sector.
In 1985 it and Securicor formed Cellnet which was one of the UK’s first two mobile operators. Fourteen years later BT bought out its partner, renaming the firm BT Cellnet.
However in 2001 cash pressures helped BT decide to spin-off the company as a standalone entity, now called O2, which was later bought by Spain’s Telefónica.
The company has since offered business and consumer mobile services by piggy-backing on other carriers’ networks but has been unable to match the main networks on pricing and range of handsets and struggled to attract large numbers of customers.
Most recently it signed a virtual network deal with EE and planned to combine the firm’s 3G and 4G network with its own fibre broadband to create a service capable of switching seamlessly between mobile and WiFi to ensure users always enjoyed good reception.
However in November BT said it was in preliminary talks both with O2 and EE about a possible acquisition of an entire network and in December announced it had entered into exclusive talks to buy EE.
BT’s lawyers and accountants have spent the past month examining EE’s finances and contracts for anything which might cause the deal to unravel.
With the due diligence process now complete and final terms of a deal agreed, the company is poised to shake-up the UK’s telecoms sector by offering bundles of mobile, broadband, home phone and pay-TV services on a single bill.
Although TalkTalk and Virgin Media already offer so-called ‘quad-play’ bundles through their own virtual network deals, BT’s ownership of a full network is expected to deliver significant cost savings, potentially allowing it to undercut rivals.
Even before completing the EE purchase, BT’s imminent re-entry into the mobile sector has forced rivals to bolster their own offerings.
Vodafone is expected to launch its own TV offering in the coming weeks while Sky has signed a virtual network deal with O2 which is itself due to be bought by the owners of Three.
EE’s nationwide network of high street stores will provide BT will the opportunity to demo its TV services, including BT Sport, and broadband packages to potential subscribers.
The mobile network’s 24.5m customers can expect to be tempted with deals aimed at persuading them to move to their broadband and TV services to BT.
Customers are also likely to gain bundled access to BT Sport on their smartphones and tablets.
EE Chief Executive Olaf Swantee said: “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.”
Deutsche Telekom Chief Executive Tim Höttges commented: “The transaction is much more than just the creation of the leading integrated fixed and mobile network operator in Europe’s second largest economy. We will be the largest individual shareholder in BT and are laying the foundations for our two companies to be able to work together in the future. This is another example of the consistent and successful execution of our portfolio optimisation strategy.”
Orange Chief Executive Stéphane Richard added: “This is a landmark transaction for Orange and the next natural step in the evolution of BT and EE. We are confident the combined company will go on to provide new and exciting services to its customers as the demand for data and connected services continues to grow.”
The deal is conditional on approval from BT’s shareholders and UK regulators and is expected to complete before the end of BT’s 2015/16 financial year.