In a move that would boost BT’s standing as the leading integrated telco and increase pressure for competitors, Orange and Deutsche Telekom have entered into exclusive negotiations with BT Group regarding a potential divestment of 100% of their shares in EE, their joint venture in the UK. The purchase price of £12.5 billion on a debt-/cash-free basis would be split equally between Orange and Deutsche Telekom. At a price of roughly 7.8 times EV/EBITDA the deal isn’t outrageously overpriced. So what could this mean for the various market participants? Should the deal go ahead, we believe that the implications for the UK telco market would be significant as:
- BT becomes once again the leading integrated telco in the land. A deal would have a larger impact on BT’s consumer than its business activities given EE’s customer base of 24.5 million mostly consumer mobile customers. As the strongest 4G LTE provider in the UK, EE would give BT a platform to deliver interesting new bundles such as dedicated sport channels for smartphones and tablets. EE would be an important asset to enhance BT’s already successful retail arm, in particular its IPTV activities, where BT is one of the few telcos that manages to offset the decline in traditional telco services with a new offering. The deal would fail to bring any significant new customer relationships in the business arena. Going forward, however, this would finally provide BT with the opportunity to develop mobile moments for its business customers.