Deutsche Telekom and France Telecom have today announced that they have entered into exclusive negotiations to combine T-Mobile UK and Orange UK in a new 50:50 joint venture company.
The business will have pro forma 2008 revenues of approximately £7.7 billion (US$12.6 billion) and EBITDA of £1.7 billion (US$2.8 billion).
In a statement, the companies said that the combination will place the joint venture in a better position to invest in innovative new services and to exploit new technologies. The new enlarged business will also be able to compete more effectively with the other two large mobile operators in the market.
Timotheus Höttges, CFO of Deutsche Telekom, said: "We will become market leader - our customers will benefit in many ways, for example from the best mobile broadband offer in Britain. In the second-biggest market in Europe, which is undoubtedly one of the toughest and most competitive, we are giving T-Mobile UK a clear and strong future. And, with our partnership, we have taken the most value enhancing strategy for Deutsche Telekom and its shareholders."
Gervais Pellissier, CFO of France Telecom said: "By combining our operations in the UK, we anticipate the long-awaited consolidation in one of Europe's most competitive markets, thereby creating a well positioned player. This will reinforce fair competition and will provide strong benefits for our customers through improved coverage, quality of service and an enhanced capacity to develop new services and technologies. Our shareholders will benefit from higher profitability and an immediate cash flow per share accretion without impacting the overall indebtedness of the parent companies."
The merged venture is expected to lead to operational cost savings of £445 million (US$730 million) per year from 2014 onwards. These savings will be dependent on up to £800 million (US$1.3 billion) in integration costs over the period from 2010 to 2014. Those costs would primarily relate to the decommissioning of mobile sites, the rationalisation of the network of retail stores and the streamlining of operations.
The T-Mobile UK and Orange UK brands will be maintained separately for 18 months after completion of the transaction. During that period management will review branding alternatives for the joint venture and will develop a new branding strategy recommendation for shareholder approval.