According to separate statements from the companies involved, BT Group plc (ADR) (NYSE:BT) has begun exclusive talks to acquire Deutsche Telekom AG (ADR) (OTCMKTS:DTEGY) (ETR:DTE) and Orange SA (ADR) (NYSE:ORAN) (EPS:ORA)’s UK wireless business EE for around 12.5 billion pounds ($19.6 billion). BT’s statement noted the period of exclusivity for negotiations is “several weeks” and any deal will require the approval of BT shareholders.
Analysts point out that Deutsche Telekom and Orange apparently beat out Telefonica S.A. (ADR) (NYSE:TEF), which was negotiating to sell its UK mobile division O2 to BT. There was no comment from Madrid-based Telefonica.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
More on the BT Group – Deutsche Telekom deal
The deal for EE would give BT Group access to the UK’s largest mobile-phone operator and create the largest provider of bundles of mobile, home-phone, TV and Internet service in the country. The deal comes at a time when Europe’s telecom providers are merging to try and boost customer loyalty as consumers increasingly buy several different services from a single provider.
Of note, Deutsche Telekom will own 12% of BT Group, and Orange close to 4% as well as a higher proportion of the cash. A final deal would mean the end of a successful four-year-old venture for the sellers, a business that was the first to offer high-speed, fourth-generation wireless service in the country. However, EE’s revenue have fallen off a bit, down 2.55 in the third quarter as prepaid customers explored other options.
Right now, UK wireless and fixed-line providers use wholesale partnerships to sell each other’s services. For example, Vodafone will be reselling BT Internet together with a TV service next year. EE has also added a TV set-top box to its new mobile and web packages, and BT Group plc (ADR) (NYSE:BT) will begin reselling EE’s mobile service to UK consumers next year
Statements from analysts
“It’s a very smart move from a strategic point of view to launch quad-play, and they picked an asset they know the value of very well,” commented Vincent Maulay, an analyst at Oddo & Cie. in Paris.
Maulay also noted the price for EE, nearly 8 times earnings before interest, taxes, depreciation and amortization, was somewhat above his 12.2 billion-pound estimate.
Separately, Bloomberg Industries analyst Erhan Gurses said in a note, “Additional debt burden from a potential acquisition may weigh on BT’s ability to aggressively bid for content.”