The owners of UK mobile operators T-Mobile and Orange have announced they’re in exclusive negotiations to combine the two operations in a new 50:50 joint venture. The resulting entity will have around 37% of the UK market with more than 28 million customers.
The announcement by Deutsche Telekom and France Telecom comes after weeks of speculation about T-Mobile’s future. Insiders say that Orange’s broadband activities will allow the new company to offer “convergent solutions” in future.
Timotheus Höttges, Chief Financial Officer at T-Mobile owner Deutsche Telekom, said today’s announcement gave the business “a clear and strong future.”
“And, with our partnership, we have taken the most value enhancing strategy for Deutsche Telekom and its shareholders.”
Customers are expected to benefit from higher indoor and outdoor network quality for both 2G and 3G services and from the merged company’s greater negotiating power with handset makers.
Gervais Pellissier, CFO of France Telecom said: “By combining our operations in the UK, we anticipate the long-awaited consolidation in one of Europe’s most competitive markets, thereby creating a well positioned player. This will reinforce fair competition and will provide strong benefits for our customers through improved coverage, quality of service and an enhanced capacity to develop new services and technologies.”
How the deal will work
To create the new joint venture, Deutsche Telekom would contribute T-Mobile UK on a cash-free, debt-free basis, including T-Mobile UK’s 50 percent holding in its 3G network joint venture with Hutchison and gross tax losses carried forward of at least £1.5 billion.
France Telecom would contribute the whole of Orange UK including £1.25 billion of intra-group net debt in order to equalize the value of the contributions to the joint venture. Immediately after closing Deutsche Telekom would grant a £625 million shareholder loan to the joint venture, which would be used to simultaneously reimburse £625 million to France Telecom. As a result, the joint venture would have indebtedness of £1.25 billion, represented by two shareholder loans of £625 million held by each of Deutsche Telekom and France Telecom.
The Board of the new joint venture company will have balanced representation from Deutsche Telekom and France Telecom. The management team would be led by Tom Alexander, currently CEO of Orange UK, as CEO and Richard Moat, currently CEO of T-Mobile UK, as COO. The governance of the joint venture would attribute extensive operational decision-making to the management team.
The T-Mobile UK and Orange UK brands will be maintained separately for 18 months after completion of the transaction. During that period management will review branding alternatives for the joint venture and develop a new branding strategy recommendation for shareholder approval.