Last checked at 
LONDON (Alliance News) - BT Group PLC said Thursday it has now agreed a deal to acquire mobile network EE Ltd for GBP12.5 billion in cash and shares, a deal that will give EE's joint owners Deutsche Telekom AG and Orange SA stakes in BT.
BT will pay the cash amount through a combination of new debt financing and around GBP1 billion from the placing of new BT shares. It said this placing will be launched in due course.
BT also will issue shares to EE's two current owners. It will issue around 1.2 billion new shares, valued at around GBP5.1 billion to Deutsche Telekom for a 12% stake in BT, along with a small cash payment, and 400 million new shares to Orange value at around GBP1.7 billion and GBP3.4 billion in cash, giving it a 4% stake.
Deutsche will also be able to appoint a non-executive member to BT's board.
If the deal falls through BT will pay a break fee of GBP250 million to the two companies.
BT said it expects to secure cost and capital expenditure synergies of around GBP360 million per year in the fourth full year after completion. It expects to generate revenue synergies with a total value of GBP1.6 billion from the acquisition.
The deal is expected to add to BT's free cash flow per share in the first full year after completion. As a result of EE's high depreciation charge, it is expected to add to adjusted earnings per share one year later.
BT said it does not expect differences in the accounting policies between the two companies to have a "material impact" on EE's earnings before interest, tax, depreciation and amortisation, although it may effect the timing of recognition.
The acquisition is subject to approval by BT shareholders as well as regulators, it is expected to be completed before the end of BT's 2016 financial year.
In a separate announcement Thursday, EE said it expects the deal to close by March 2016.
BT Chief Executive Gavin Patterson told journalists Thursday morning that this estimate was based on the deal entering a phase 2 merger investigation by the Competition and Markets Authority, and if it were only to go through a phase 1 merger investigation this would be completed by the end of the summer.
Patterson stressed that the acquisition does not reduce the number of mobile networks in the UK, and that it should not trigger regulatory intervention.
However, BT rival Vodafone PLC is expected to raise objections to the deal, in a bid to persuade the regulators to force BT to offload some mobile network spectrum, the Daily Telegraph reported Thursday.
BT reiterated that it will continue with its own plans to launch consumer mobile services before the end of March through its existing mobile virtual network operator agreement with EE.
Patterson told journalists that BT would consider the branding of EE after the acquisition is completed, but it will initially maintain the EE brand.
In terms of the upcoming Premier League rights auction, due to start this Friday, and how the acquisition might effect BT's ability to bid for the rights Patterson said that BT is confident it can make a "competitive offer".
"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," said Patterson in a statement.
Edison Investment Research analyst Dan Ridsdale says that "in the space of a few months the UK telecoms landscape has changed enormously."
"As the majors fill in the gaps in their offerings, competition to offer multi-play bundles is going to step up significantly. Whether this will be beneficial for consumers is a very different question. The bundling of services makes it much more difficult to compare pricing while more premium TV content is likely to move away from free to air," Ridsdale says.
BT's GBP1 billion share placing is much less than some analysts had expected. When the talks about the deal first started, analysts had predicted BT could launch a rights issus of up to GBP2 billion.
Shares in BT are trading up 2.7% at 434.17 pence Thursday morning, making it the biggest gainer on the FTSE 100 on the day.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
Copyright 2015 Alliance News Limited. All Rights Reserved.
