BT to acquire O2 or EE? The question worth billions has been answered

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The question worth billions of pounds may very well have been answered as BT revealed that it has entered into an exclusivity agreement with Deutsche Telekom and Orange for possible acquisition of Everything Everywhere (EE).

The agreement doesn’t mean that BT will right away sign over the dotted line, but it means that it will now commence several weeks of relevant due diligence and negotiations for a possible acquisition. However, given BT’s intentions of reentering the mobile segment, we believe that the agreement will most certainly bear fruits.

Further, the agreement doesn’t demand that the final transaction has to take place, but if it does BT shareholders will have to approve of the acquisition.

As far as the terms of the exclusivity agreement go, the price for EE has been fixed at £12.5 billion on a debt/cash free basis that will include a combination of cash and BT shares issued to both Deutsche Telekom and Orange. If the deal goes through, Deutsche Telekom will end up owning 12 per cent stake in BT while Orange would hold a 4 per cent stake. Also, Deutsche Telekom would be entitled to appoint one member of the BT Board of Directors.

EE is certainly the more expensive of a choice as compared to O2, but the acquisition will give BT the ability to accelerate its mobility strategy while also giving it a head-start in terms of 4G coverage thanks to EE’s efforts of providing nationwide coverage. With a greater share of 4G network, it will also have a greater control over product innovation and future investment.

Other players in the UK will most certainly voice their concerns if BT decides to go ahead with the acquisition and there have been reports that Vodafone, Virgin and Sky may also approach regulators to have the deal scrapped.