BT Group Plc (BT/A) is in talks to buy Telefonica SA (TEF)’s O2 unit or another mobile-phone company to expand its wireless offering in the U.K. and complement its broadband network, the largest in the country.
EE, the wireless carrier co-owned by Orange SA (ORA) and Deutsche Telekom AG (DTE), is the other company in talks with BT, a person familiar with the matter said, asking not to be named because the negotiations are private. BT said it’s in preliminary talks for two companies and only identified O2 as a target. EE and O2 are each valued at more than $15 billion by Macquarie Group.
BT would probably offer a stake in itself to fund the deal, another person with knowledge of the matter said. Either company would give London-based BT the customer base and network of one of the top three U.K. wireless providers, strengthening BT’s position as companies in the market move toward selling bundles of TV, Internet and phone services.
A deal would make BT the largest phone carrier in the U.K. that can offer both wireless and fixed-line services without having to rent network capacity from someone else.
“You need infrastructure,” said Guy Peddy, an analyst at Macquarie in London. Buying access to other networks isn’t “sustainable in the long term.”
Photographer: Simon Dawson/Bloomberg
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BT shares rose 3.7 percent to 394.20 pence at 2:20 p.m. in London. Telefonica added 1.3 percent to 12.64 euros in Madrid. Deutsche Telekom gained 1 percent to 13.29 euros in Frankfurt and Orange increased 1 percent to 13.84 euros in Paris.
Deal Price
The discussions are at a “highly preliminary stage and there can be no certainty that any transaction will occur,” BT said today. Representatives for Telefonica, Deutsche Telekom and EE declined to comment. An Orange representative couldn’t immediately be reached for comment.
EE’s shareholders have revived talks to sell the company, which may be valued at as much as $19 billion, people familiar with the matter said last month. Macquarie’s Peddy said the value of EE may be about 11 billion pounds ($17 billion).
O2 would be cheaper at about 10 billion pounds, Peddy said. Citigroup Inc. analyst Simon Weeden said the unit has an enterprise value of about 9.4 billion pounds.
BT spun off O2 in 2001 as the company tried to find a way to finance expansion and pay for spending to build out faster wireless services. Telefonica bought the unit for 17.7 billion pounds in 2005.
Telefonica Chief Operating Officer Jose Maria Alvarez-Pallete said at a conference in Barcelona last week that the company would stand by its mobile-only offer in the U.K. for now, until there’s more proof that subscribers want converged services. The company is the last of the major carriers not to have a bundled option.
Photographer: Simon Dawson/Bloomberg
BT Group Plc is in talks to buy Telefonica SA's O2 unit or another mobile-phone company...Read More
Orange Partnership
Orange Chief Executive Officer Stephane Richard said at the same conference that EE was looking for a strategic alliance with a cable or landline company to expand in the U.K. The company might look at partnerships that involve sharing infrastructure or a change in the capital structure of its EE business, he said.
BT is starting its own consumer mobile service next year in a partnership with EE in order to offer bundles of phone, Internet and TV service. The former U.K. phone monopoly is also providing broadband access to EE and Vodafone Group Plc so that they can offer their own packages.
BT said it will continue with the plan to roll out mobile service on EE’s network next year and has been looking at ways to accelerate the introduction, including an acquisition.
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