BT has agreed definitive terms to acquire EE for £12.5 billion (€16.7 billion) after talks with Deutsche Telekom and Orange concluded successfully.
The combined entity, which BT said it hoped would come into being within 12 months following shareholder and regulatory approval, will be the UK’s largest converged telecoms firm.
The deal sees EE parents DT and Orange receive £5.1 billion (€4.6billion) each in cash and shares.
DT will get a nominal cash payment and 12 percent of BT, making it the UK operator’s largest shareholder, while Orange will get £3.4 billion and a four percent stake.
BT said it intends to raise the cash part of the deal through a £1 billion rights issue and new debt financing.
Following completion, DT will be restricted from purchasing any more shares for three years, unless it acquires them directly from Orange. In such a case, DT’s holding can increase to 15 percent.
Orange will be restricted from taking its holding above four percent for three years.
BT said it expects to achieve combined operating cost and capex synergies of around £360 million per annum in the fourth year post completion.
It said integration costs would be £600 million.
The announcement concludes exclusive talks that the parties entered into last December.
BT wants to return to the mobile market after a decade long absence, in a bid to capture the growing trend for triple and quad-play services.
EE has 31 million customers, made up of 24.5 million mobile customers, 3.7 million MVNO customers, 1.9 million M2M connections and 834,000 fixed broadband customers.
Its retail customers will be targeted with BT’s broadband, fixed telephony and pay-TV services.
BT said EE’s assets were “highly complementary” with little overlap in market share.
Last week, BT revealed revenues fell three percent in the last quarter of 2014.
Interestingly, BT said it will continue with its plans to start offering consumer mobile services before the end of March through its existing MVNO agreement with EE.
BT Business will also continue to develop the mobile services for UK enterprises that it unveiled last year.
BT Chief Executive Gavin Patterson commented: “This is a major milestone for BT as it will allow us to accelerate our mobility plans and increase our investment in them.
“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.”
BT said the deal “provides a platform” for it to explore whether there are any opportunities to work together with DT in the future.
Deutsche Telekom Chief Executive Tim Höttges commented: “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.”
DT founded EE with Orange in 2010. Orange Chief Executive Officer Stéphane Richard said: “This agreement with BT enables us to successfully monetise more than five years of effort to create, together with our partner Deutsche Telekom, Britain’s leading mobile operator, EE.
“For Orange, this operation will enable us to reinforce our balance sheet, thereby providing us with additional room for manoeuvre across our markets.
“By retaining a significant stake in BT, we will also stand to benefit from the synergies of this operation that will lead to the creation of the leading convergent fixed and mobile operator in the UK.”