BT Group Plc agreed to buy British mobile carrier EE Ltd. for 12.5 billion pounds ($19 billion) to create a wireless and broadband giant set to shake up the country’s telecommunications industry.
Orange SA and Deutsche Telekom AG, the French and German owners of the four-year-old venture, will receive a mixture of cash and new BT shares, London-based BT said in a statement Thursday. The combination will generate cost savings and additional revenue valued at about 3 billion pounds after costs. The deal, which needs antitrust approval, will probably be completed by March 2016, BT said.
If the transaction is completed, BT will control the biggest high-speed broadband network as well as the largest wireless operator in the U.K., letting it sell packages of mobile, TV, home phone and Internet services. The move has fueled talks among rivals, including Sky Plc and Vodafone Group Plc, as they look for ways to bulk up or add services to create their own bundles.
Deutsche Telekom will receive a 12 percent stake in the enlarged carrier while Orange will get 4 percent. Bonn-based Deutsche Telekom, which will get one board seat, is open to buying out Orange’s BT shares in the future, people familiar with the matter said in December. EE, with about 28 million customers, edged out Telefonica SA’s O2, the second-largest U.K. wireless company, as BT’s preferred target when they started exclusive talks in December.
Weeks later, Madrid-based Telefonica began negotiations to sell O2 to Hong Kong billionaire Li Ka-shing’s Hutchison Whampoa Ltd. Hutchison is set to merge O2 with its own U.K. wireless company, Three, creating an operator with more than 30 million subscribers and supplanting EE.
Carriers worldwide are pursuing a strategy that lets them sell a broader array of services to increase revenue and customer loyalty. Europe’s mobile companies are still coping with declining sales after years of intense competition to win subscribers in saturated markets. For BT, the move into wireless is part of the former phone monopoly’s transformation that’s included rolling out a high-speed fiber-optic broadband network and bidding for exclusive access to popular sports broadcast rights.
Still, a multi-billion dollar acquisition leaves BT with a diminished coffer to bid for TV rights such as those for the U.K.’s Premier League soccer games. In 2012, as BT prepared to unveil its sports channels, the company agreed to pay 246 million pounds a season for the franchise.
BT reported net debt of 6.2 billion pounds at the end of 2014. Its debt is rated BBB, the second-lowest investment grade, by Standard & Poor’s. The carrier plans to finance the purchase with borrowings and about 1 billion pounds in a stock placement.
BT is working with Goldman Sachs Group Inc., JPMorgan Chase & Co. and Perella Weinberg Partners LP. Orange was advised by Morgan Stanley and Bank of America Corp. while Deutsche Telekom worked with Barclays Plc.