BT's £12.5bn Acquisition of EE Builds Alliances

BT agreed to acquire EE for £12.5 billion (approximately US$19.04 billion), giving it the leading mobile network operator in the UK with 31 million customers (including 24.5m direct mobile customers and 834,000 are fixed broadband customers) and significantly expanding its over strategy. EE (everything Everywhere) is the company that runs the Orange and T-Mobile networks in the UK.

The deal is structured as a combination of cash and new BT ordinary shares issued to both Deutsche Telekom and Orange, thereby bringing the traditional incumbent operators of the UK, Germany and France into closer alliance. Upon closing, Deutsche Telekom will hold a 12% stake in BT and will be entitled to appoint one non-executive member of the BT Board of Directors. Orange will hold a 4% stake in BT.

Some highlights:

• EE has the largest 4G customer base of any operator in Europe
• By combining the UK's most advanced 4G network and most extensive superfast broadband network, BT will have greater scope for future investment and product innovation
• BT expects to achieve combined operating cost and capex synergies of around £360m p.a. in the fourth full year post Completion.
• BT expects to generate revenue synergies by providing a full range of communications services to the combined customer base. This includes BT selling its broadband, fixed telephony and pay-TV services to those EE customers who do not currently take a service from BT. 
• BT also expects to accelerate the sale of converged fixed-mobile services to BT’s existing consumer and business customers and offer new services, using both companies’ product portfolios, skills and networks. BT expects to generate revenue synergies with a total net present value of approximately £1.6bn

“This is a major milestone for BT as it will allow us to accelerate our mobility plans and increase our investment in them. The UK’s leading 4G network will now dovetail with the UK’s biggest fibre network, helping to create the leading converged communications provider in the UK. Consumers and businesses will benefit from new products and services as well as from increased investment and innovation. The deal provides an attractive opportunity for BT to generate considerable value for shareholders, with significant operating and capital investment efficiencies supported by our tried and tested cost transformation activities," stated BT Chief Executive Gavin Patterson.

“The transaction is much more than just the creation of the leading integrated fixed and mobile network operator in Europe's second largest economy. We will be the largest individual shareholder in BT and are laying the foundations for our two companies to be able to work together in the future. This is another example of the consistent and successful execution of our portfolio optimisation strategy,” said Deutsche Telekom Chief Executive Tim Höttges.

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• During 2014, EE added a record 5.7 million customers to its 4G network, with 1.7 million in the last two months alone. This beat the 6 million year-end target. In 2014 EE added 350 more cities and towns, with more than 200 added in Q4 alone, bringing the total to 510 covered UK towns and cities with populations of 10,000 and above. 4G from EE now covers more than 80% of the population and is on target to reach 98% by the end of 2015. The company reported six times more 4G data uploaded and downloaded by customers in 2014 than in 2013.