BT’s 12.5bn bid for EE faces legal battle

18/12/2014

BT is in exclusive talks to buy EE £12.5bn but the two communications giants could be in for a difficult legal battle to make the deal go ahead.

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BT has entered into an exclusivity agreement with Deutsche Telekom and Orange in relation to the possible acquisition of all of the operators' UK mobile business, EE.

If it all goes ahead, BT would own the UK's biggest 4G network, giving it greater control in terms of future investment and product innovation.

The terms, which are non-binding, include a purchase price of £12.5bn for EE on a debt and cash-free basis.

"The period of exclusivity will last several weeks, allowing BT to complete its due diligence and for negotiations on a definitive agreement to be concluded," the telco said. "The proposed acquisition would enable BT to accelerate its existing mobility strategy whereby customers will benefit from innovative, seamless services that combine the power of fibre broadband, WiFi and 4G."

The consideration for EE will be payable as a combination of cash and new BT ordinary shares issued to Deutsche Telekom and Orange.

Following the transaction, Deutsche Telekom would hold a 12 percent stake in BT and would be entitled to appoint one member to the BT board of directors. Orange would hold a four percent stake.

The exclusivity agreement does not require the parties to enter into a transaction and there can be no assurances that one will occur, BT said.
If a transaction is agreed, approval by BT's shareholders will be required as a condition of the purchase.

However, BT is already lining up its first clash with Ofcom’s new chief executive to defend its dominance of the superfast broadband market.

The company has told officials that it will mount a court challenge against an attempt to control its superfast broadband pricing in the New Year.

Ofcom is expected in early January to announce details of a "margin squeeze" test to check whether rivals who rely on access to its network infrastructure to offer superfast broadband – Sky, TalkTalk and, soon, Vodafone – are able to make a reasonable return. It will look at whether BT’s own retail prices for superfast broadband are too close to the wholesale prices its competitors must pay.

A legal battle is likely to take years and will frustrate Ofcom, which has been seeking stronger decision-making powers after repeatedly getting bogged down in the courts under its departing executive, Ed Richards.

Assuming the EE takeover goes through, Sky, TalkTalk and Vodafone are expected to push for much stronger regulation of Openreach, the BT division that supplies them with wholesale broadband. They could press for it to be formally separated from BT or more immediate remedies such as access to “dark fibre” that would allow them to control over more of the links to their customers.

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