BT Group Signs $19 Billion Deal To Acquire EE

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BT Group agreed Thursday to acquire EE, Britain’s largest cell phone network, for £12.5 billion ($18.98 billion) in a deal set to spark more mergers as operators vie for customers. The deal would give the 168-year-old telecom giant a sprawling, faster-speed fourth-generation wireless network that currently covers some 75% of the U.K. population.

BT – EE: the lowdown on the deal

In December,ValueWalk reported that BT Group had begun exclusive talks to acquire Deutsche Telekom and Orange SA’s U.K. wireless business EE for around 12.5 billion pounds.

Following weeks of exclusive talks, the former British telecommunications monopoly said Thursday that it had agreed to buy EE for £12.5 billion ($18.98 billion) in cash and stock. The deal marries the U.K.’s largest fixed-line telecommunications operator and the country’s biggest mobile operator. The deal would enable BT to sell bundled offers of fixed-line, mobile, broadband and television services.

As part of the deal, Deutsche Telekom will become BT’s largest shareholder with a 12% stake and a board seat, while Orange of France will hold a stake of 4%. BT said the price reflects a multiple of about six times 2014 cash earnings, adjusted for cost savings. To fund the takeover, BT plans to raise £1 billion by selling shares and debt.

The telecom giant anticipates annual savings of £360 million by the fourth full year following the completion of the transaction. This translates to about £3.5 billion before integration costs or £3 billion after integration costs. The British telecommunications giant anticipates generating extra revenue of about £1.6 billion a year.

In 2001, BT spun off a then-struggling cell phone business. However, Thursday’s deal highlights a growing recognition by telecom firms that they must offer bundled services in order to grow. Following BT’s acquisition announcement, its shares were up 4.4% at £441.4 in morning trading.

EE edged out O2

Britain’s largest cell phone network, EE, edged out Telefonica’s O2, the second-largest U.K. wireless company, as BT’s preferred target when they started exclusive talks in December. The deal envisages Orange and Deutsche Telekom receiving as much as £6.2 billion in cash and the balance in new BT shares.

Exuding confidence over the deal, Gavin Patterson, BT’s chief executive, said: “This is a major milestone for BT. By acquiring the country’s largest mobile operator, we can accelerate BT’s mobility strategy.”

The acquisition, if it closes, will catapult BT to being the country’s largest provider of both cable and cell phone services.

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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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