BT and EE have agreed definitive terms over the £12.5bn sale of the mobile network operator (MNO), in a combination of cash and new BT ordinary shares to be issued to EE’s parent companies, Deutsche Telekom and Orange.
This values EE at six times its 2014 earnings before interest, taxes, depreciation and amortisation (Ebitda), and 9.6 times its 2014 operating free cash flow, adjusted for net present value of operating costs and capex synergies.
Following the transaction and equity placing, which is subject to clearance from the competition authorities, Deutsche Telekom will own a 12.5% chunk of BT and will be allowed to appoint a non-executive member to BT’s board, while Orange will take a 4% stake.
Deutsche Telekom will become BT's largest shareholder as a result.
With 31 million customers, EE is by some margin the largest MNO in the UK at present, with the largest 4G customer base of any operator in Europe. It was formed from the combination of T-Mobile and Orange in 2009.
BT, meanwhile, has been looking to get back into mobile after exiting the space some years ago with the sale of O2 – itself now the subject of acquisition talks with Three – and prior to making its move on EE, was exploring the possibility of starting its own mobile venture.
More on BT and EE
In a statement, BT said bringing EE into the fold and combining “the power of fibre broadband with Wi-Fi and advanced mobile capabilities” would help it build its mobile strategy and increase its capacity for future investment and innovation.
BT said it expected to achieve cost and capex synergies of £360m a year by the fourth year post completion, equivalent to net present value of around £3.5bn before integration costs, £3bn after. Cash return on investment is expected to comfortably exceed BT’s cost of capital by 2018.
Some of these so-called synergies will be eked out around cross selling BT’s current broadband, fixed line and pay TV services to EE customers, and the sale of converged fixed-mobile services to its current consumer and business subscribers.
BT chief executive Gavin Patterson said the deal is a major milestone for BT and will allow it to accellerate its mobility plans and increase 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 said.
“Consumers and businesses will benefit from new products and services, as well as from increased investment and innovation.”
Creating a 'world-class digital infrastructure'
Patterson concluded the enlarged BT would also offer significant opportunities for its employees as it leads the creation of a "world-class digital infrastructure”.
EE’s Olaf Swantee added: “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.”
He said the announcement would keep the UK at the forefront of the mobile revolution.
Separately, EE has also put out its full year results for 2014, with adjusted Ebitda up by 1% to £1.59bn.
Although turnover dropped by 2.4% and operating revenue by 1.4%, to £6.33bn and £6.04bn respectively, EE said it saw record growth on 4G, with its customer base almost quadrupling, and strong growth in postpaid and new connected customers, fixed and machine to machine.