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BT enters exclusive negotiations to buy EE for £12.5bn BT enters exclusive negotiations to buy EE for £12.5bn
(about 3 hours later)
Telecommunications giant BT has announced it has entered exclusive talks to buy EE in a deal worth £12.5 billion. BT plans to buy EE for £12.5bn 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 the period of exclusivity would last "several weeks" and would allow the company to continue negotiations for a definitive agreement. BT said last 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. 
The announcement puts an end to days of speculation over whether BT, which is looking to re-enter the mobile market, would opt for Telefonica-owned 02 or rival EE, which is owned by Deutsche Telekom and Orange. Its chief executive, Gavin Patterson, plans to pay using a mix of cash and BT shares.
If the negotiations are successful, the cash and shares deal would be worth £12.5 billion. As part of the transaction, Deutsche Telekom would hold a 12 per cent stake in BT and would be entitled to appoint one member of the BT board. Orange would hold a 4 per cent stake in BT. Deutsche Telekom will keep a big foothold in the UK by taking a 12 per cent 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 per cent of BT.
BT, with a market value of £31bn, has already announced plans to launch in mobile – completing its quad play line-up as it is already number one in broadband and home phone and now has BT TV too. 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.
The company said the acquisition of EE would allow to develop its mobile strategy and would result in "significant synergies". However, BT played down the impact should the deal not go through, insisting that it remains confident it can deliver on its mobile strategy on its own. BT and EE’s owners will hold several weeks of negotiations to complete due diligence and reach a “definitive agreement”.
Merging BT, worth £32bn, with EE, valued at £12.5bn, suggests the group would be worth £44bn. It would have almost £25bn of sales, based on BT’s £18.2bn of annual revenue and EE’s £6.5bn.
Rivals including Sky, Vodafone and Virgin are likely to protest to competition regulators about the planned acquisition. EE controls some of the UK’s best super-fast 4G mobile spectrum and has six 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. 
Mr 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 fibre broadband, wi-fi and 4G.” Mr 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 UK 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 per cent 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.