BT enters negotiations to buy EE for $19.6B
BT plans to buy EE for $19.6 billion (£12.5 billion) in a dramatic move that will see Britain's biggest broadband and home phone company unite with the country's biggest mobile operator in a deal that is certain to face regulatory hurdles.
BT said Monday night it had entered into "exclusive talks" with EE's owners, Deutsche Telekom of Germany and Orange of France, after rejecting O2, Britain's second biggest mobile operator, which is owned by Spain's Telefonica.
Its chief executive, Gavin Patterson, plans to pay using a mix of cash and BT shares.
Deutsche Telekom will keep a big foothold in the U.K. by taking a 12% stake in an enlarged BT in exchange for its stake in EE. However, Orange will sell most of its holding and will have just 4% of BT.
BT did not give full details about how it plans to pay, saying it was "mindful of the importance of maintaining a conservative financial profile." BT has one of the largest pension deficits in the FTSE 100.
BT and EE's owners will hold several weeks of negotiations to complete due diligence and reach a "definitive agreement."
Merging BT, worth $50 billion, with EE, valued at $19.6 billion, suggests the group would be worth $69 billion. It would have almost $39 billion of sales, based on BT's $29 billion of annual revenue and EE's $10 billion.
Rivals including Sky, Vodafone and Virgin are likely to protest to competition regulators about the planned acquisition. EE controls some of the U.K.'s best super-fast 4G mobile spectrum and has 6 million 4G customers, double the number of its nearest rival.
BT said the tie-up would benefit customers who wanted "seamless" Internet access in the home and on the go.
Patterson was already planning to launch a mobile service next year and had a wholesale deal with EE for access to its network, but this acquisition will "accelerate" this strategy, according to BT, which added: "Customers will benefit from innovative, seamless services that combine the power of fiber broadband, wi-fi and 4G." Patterson is already betting that British consumers will want to buy the so-called quad play of services – mobile, home phone, broadband and TV – from a single provider, even though there have been mixed signs that customers want it.
EE's chairman, Thomas Dannenfeldt, the chief financial officer of Deutsche Telekom, said: "We firmly believe that convergence is the future of telecommunications in Europe. Customers want fixed-mobile converged services from a single provider."
EE has 24.5 million mobile customers and close to 700 stores, giving BT a large retail presence for the first time on British high streets. BT has 18.4 million broadband lines and its Openreach division, a network for the wider telecom industry, operates 25 million lines.
BT expects "significant synergies" through merging services and believes it can cross-sell to EE customers.
The deal will be a blow to debt-laden Telefonica, as O2 will be left as the only one of the three big U.K. mobile networks not to offer quad play. Vodafone launches its offering next year.
Some analysts thought O2 was a more likely partner for BT, which used to own the network when it was Cellnet. But there was also speculation that BT was uneasy about Telefonica having a large stake of as much as 20% in BT.
The news is expected to trigger a wave of consolidation, with speculation that Hutchison Whampoa, the owner of Three, or Sky could eye O2. Vodafone has also reportedly considered a merger with Virgin Media's owner, Liberty Global.
This story originally appeared in The Independent. The content was created separately from USA TODAY.
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