BT Group seals deal to acquire EE for £12.5 bn

British telecom giant BT Group Plc (BT) said yesterday that it has agreed to the terms to acquire the UK's leading mobile operator EE, earlier known as 'Everything Everywhere', for approximately £12.5 billion ($19.2 billion) to create the UK's biggest communications provider.

BT chief executive Gavin Patterson (l) and EE chief executive Olaf Swante

In December, BT revealed that it was in ''exclusive talks'' with EE's owners Deutsche Telecom and Orange for a possible combination of the businesses. (See: BT Group in exclusive talks to buy UK mobile phone network of EE for £12.5 billion)

The deal will enable BT to offer full range of services including mobile, broadband, fixed telephony and pay-TV services to its customers.

''The combination of EE and BT will provide customers with innovative, seamless services that combine the power of fibre broadband with wi-fi and advanced mobile capabilities,'' BT said in a statement.

EE, formed in 2010 through the merger of Germany's Deutsche Telecom and France Telecom's Orange, became the first telecom company in the UK to provide super-fast 4G mobile services on fibre broadband.

It has around 24.5 million mobile customers in the UK and has the largest 4G customer base of any operator in Europe.

BT, which was looking to re-enter the mobile business had held talks with EE as well as the country's second-biggest operator O2, owned by Spanish telecom giant Telefonica for a possible acquisition, before finally zeroing in on EE.

BT chief executive Gavin Patterson said, ''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,'' he added.

EE chief executive Olaf Swante commented, ''Joining BT represents an exciting next stage for our company, customers and people. In the last few years alone, we have built the UK's biggest, fastest and best 4G network, significantly advancing the digital communications infrastructure for people and businesses across Britain.''

The deal has to pass through two major hurdles, the scrutiny from the UK competition and market authority as well the European commission. Subject to all the approvals customary closing conditions, the transaction is expected to close by the end of March 2016.

The mobile market in the UK is getting hotter as EE's rivals O2, and Three owned by Hutchison Whampoa are also planning a possible merger of their businesses to better compete in the market.

The acquisition will be financed through cash and new BT shares issued to both Deutsche Telecom and Orange.

Further to completion of the deal, Deutsche Telecom will become the largest individual shareholder of BT with a 12-per cent interest and will be entitled to have one non-executive member on the company's board of directors. Orange will have 4-per cent stake in BT.

Through the combination, BT expects to achieve cost and capex synergies of around £360 million in the fourth year post-completion. A one-time integration cost of approximately £500 million is anticipated to achieve this.

The transaction is expected to be accretive to BT's adjusted earnings in the second year of closing. BT expects that its sales would increase by £1.6 billion through the combination.

Rivals Vodafone and TalkTalk have already called for competition authorities to force BT to spin off its Openreach business, which enables other telecom companies to access its fibre network to carry call and data. They say once BT owns a mobile network it would give it a preferential treatment.