By Simon Zekaria
LONDON-- BT Group PLC on Thursday said it agreed to buy mobile
operator EE for GBP12.5 billion ($18.98 billion) in cash and stock,
a move that returns it to consumer wireless services for the first
time in more than a decade.
The deal, which follows several weeks of exclusive talks with
EE's owners-- Deutsche Telekom AG of Germany and France's Orange
SA--marries the U.K.'s largest fixed-line telecommunications
operator and the country's biggest mobile operator, and allows BT
to sell bundled offers of fixed-line, mobile, broadband and
television services.
It is also the latest sign that European telecom operators are
willing to push though deals to join up telecom and media services,
seen as boosting subscriber revenue and increasing customer
loyalty.
BT said it would raise GBP1 billion by selling shares to fund
the takeover, alongside debt. Deutsche Telekom will become BT's
largest shareholder with a 12% stake and a board seat, while Orange
will hold a stake of 4%. BT said the price reflects a multiple of
about six times 2014 cash earnings, adjusted for cost savings.
The takeover gives BT more than 30 million EE customers, of
which 24.5 million are direct mobile customers and 834,000 are
broadband customers, as well as 580 retail stores and about 15,000
new employees.
It also provides the 168-year-old telecom giant with a sprawling
faster-speed fourth-generation wireless network that currently
covers some 75% of the U.K. population. BT said EE has the largest
4G customer base of any operator in Europe. Mobile operators are
racing to roll out 4G networks to meet customer demand for higher
downloading of data-heavy content such as video.
BT said it expects annual savings of GBP360 million by the
fourth full year following completion of the transaction. This is
equivalent to about GBP3.5 billion before integration costs, or
GBP3 billion after integration costs, it said. BT also said it
expects to generate extra revenue of about GBP1.6 billion a
year.
"This is a major milestone for BT as it will allow us to
accelerate our mobility plans and increase our investment in them,"
said BT Chief Executive Gavin Patterson.
BT shares were up 4.4% at 441.4 pence in morning trading.
The deal is subject to approval by shareholders and the
Competition and Markets Authority, a U.K regulator. BT expects
completion by the end of its 2016 fiscal year.
But rivals were quick Thursday to raise concerns about an
enlarged BT, which already provides over a third of the U.K.'s 25
million residential telecom lines though its hefty infrastructure
division. Other operators use the network to provide their own
services to customers.
"The important thing is that the regulator has an eye [on] how
the new, large BT continues to grant access to their network," said
Vodafone Group PLC CEO Vittorio Colao. "There is a clear need for
regulatory oversight on this new big market player."
Mr. Patterson noted that other telecom incumbents in Europe have
both a fixed and mobile telecom arm. The CEO added that its fixed
network is "completely regulated."
BT's deal for EE is the latest move in the U.K.'s rapidly
evolving telecom sector, as operators scramble to join up services
across communications.
BT offers retail consumers so-called triple-play services of
fixed phone, broadband and television, and competes for subscribers
with rivals such as pay-TV giant Sky PLC. BT has also invested
billions of dollars into sports channels to lever up its broadband
business.
Unlike countries such as Spain and Germany, U.K. telecom
operators have yet to fully embrace so-called quadruple-play offers
of fixed telephony, mobile, broadband and television. But mobile
operator Vodafone is moving into the space. Liberty Global PLC's
cable operator Virgin Media and telecom group TalkTalk also
participate in "quad" play.
Sky reached an agreement to partner with the U.K. business of
Spanish mobile-phone operator Telefónica SA, with Sky launching a
mobile service for the first time next year. Separately, Li
Ka-shing shing's Hong Kong-based conglomerate Hutchison Whampoa,
owner of the U.K.'s smallest mobile operator Three, launched
exclusive talks to buy Telefónica's larger U.K. wireless rival O2
for potentially more than $15 billion.
Sky is 39%-owned by 21st Century Fox, which until June 2013 was
part of the same company as The Wall Street Journal parent News
Corp.
BT, which spun off a then-struggling cellphone business in 2001,
itself had been looking at O2 as a possible target to return to
mobile, before choosing EE.
Thursday's deal highlights a growing recognition by telecom
firms that they must offer bundled services to grow. Flagging
revenue from fixed-line and mobile is leading companies to bet that
a bundled combination of fixed-line, mobile, broadband and media
offerings could help jump-start revenue.
Write to Alex MacDonald at alex.macdonald@wsj.com
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