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Business News/ Companies / BT agrees to buy UK wireless carrier EE for $19 billion
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BT agrees to buy UK wireless carrier EE for $19 billion

Orange and Deutsche Telekom will receive as much as 6.2 bn in cash and the remainder in new BT shares, says CFO

BT rose 2.8% to 434.7 pence at 8:11 am in London. The stock has gained more than 10% in the past 12 months. Photo: AFP Premium
BT rose 2.8% to 434.7 pence at 8:11 am in London. The stock has gained more than 10% in the past 12 months. Photo: AFP

London: BT Group Plc agreed to buy British mobile carrier EE Ltd for £12.5 billion ($19 billion) to create a wireless and broadband giant set to shake up the country’s telecommunications industry.

Orange SA and Deutsche Telekom AG, the French and German owners of the four-year-old venture, will receive as much as £6.2 billion in cash and the remainder in new BT shares, chief financial officer Tony Chanmugam said Thursday during a conference call. The combination will generate cost savings valued at about £3 billion after costs. The deal, which requires antitrust approval, is projected to be completed by March 2016, BT said.

If the transaction is completed, London-based BT will control the biggest high-speed broadband network as well as the largest wireless operator in the UK, letting it sell packages of mobile, TV, home phone and Internet services. The move has fuelled talks among rivals, including Sky Plc and Vodafone Group Plc, as they look for ways to bulk up or add services to create their own bundles.

“Fixed and mobile are coming together driven by the consumption of mobile data," BT chief executive officer Gavin Patterson said during the call. “This deal leaves us in a position to take charge of our destiny."

Sale restrictions

BT rose 2.8% to 434.7 pence at 8:11 am in London. The stock has gained more than 10% in the past 12 months. Deutsche Telekom lost 0.5% to €15.72 in Frankfurt and Orange slipped 0.9% to €15.89 in Paris.

Deutsche Telekom will receive a 12% stake in the enlarged carrier and one board seat. Orange will get 4% of BT. The Germans can’t sell the shares for 18 months while the French have agreed to a 12-month restriction. Deutsche Telekom is open to buying Orange’s BT holding in the future, people familiar with the matter said in December.

EE, with more than 24 million branded customers, edged out Telefonica SA’s O2, the second-largest UK wireless company, as BT’s preferred target when they started exclusive talks in December.

Weeks later, Madrid-based Telefonica began negotiations to sell O2 to Hong Kong billionaire Li Ka-shing’s Hutchison Whampoa Ltd. Hutchison is set to merge O2 with its own UK wireless company, Three, creating an operator with more than 30 million subscribers and supplanting EE.

The purchase price values EE at 7.9 times the target’s 2014 earnings before interest, taxes, depreciation and amortization and excluding synergies. The deal will add to BT’s free cash flow in the first full year after completion and to its adjusted earnings per share one year later, BT said.

Fiber expansion

Carriers worldwide are pursuing a strategy that lets them sell a broader array of services to increase revenue and customer loyalty. Europe’s mobile companies are still coping with declining sales after years of intense competition to win subscribers in saturated markets.

For BT, the move into wireless is part of the former phone monopoly’s transformation that’s included rolling out a high- speed fiber-optic broadband network and bidding for exclusive access to popular sports broadcast rights.

Still, a multi-billion dollar acquisition leaves BT with diminished coffers to bid for TV rights such as those for the UK’s Premier League soccer games. In 2012, as BT prepared to unveil its sports channels, the company agreed to pay 246 million pounds a season for the franchise.

BT reported net debt of £6.2 billion at the end of 2014. Its debt is rated BBB, the second-lowest investment grade, by Standard and Poor’s (S&P). The carrier plans to finance the purchase with borrowings and about £1 billion in a stock placement.

Goldman Sachs Group Inc., JPMorgan Chase and Co. and Perella Weinberg Partners Lp advised BT. Barclays Plc and Citigroup Inc. worked with Deutsche Telekom, while Morgan Stanley and Bank of America Corp. assisted Orange. Bloomberg

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Published: 05 Feb 2015, 02:25 PM IST
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