If there were any doubts about the cyclicality of markets BT's (BT.A) return to the mobile fold after a 14-year break should put paid to them. After weeks of talks with EE, the combined UK mobile networks of T-Mobile and Orange, a long-mooted £12.5 billion deal (we flagged its mobile ambitions back in July) has finally been hammered out. This looks a 'once in a lifetime opportunity,' reckons one analyst today.

The fine print you can read for yourselves, but Twitter wags have already spotted the gag, speculating a renaming of the bigger group to 'ET, so you can phone home.'

The UK telco hasn't been directly in the communications on-the-go space since its debt-ladened balance sheet forced it to flog its old Cellnet business in 2001, but now it is back with a bang, and the market loves it, launching te shares to the head of the Footsie leader board today, up around 4% at 439.6p, their highest in 14 years.


On the face of it the value is in building a seamless, fully-converged communications service. EE swells BT's customer base by 24 million UK, while also handing the group the UK's most developed and sophisticated 4G network. It also brings access to the biggest mobile spectrum haul of any UK player. This prospective bud will take time to flower but this deal looks like substantially upping the ante on rivals Sky (SKY) and Vodafone (VOD) spring to mind) in this viciously competitive market already deep in the throes of consolidation.

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However, BT has merely begun its long walk to mobile, as the graphic below shows (hat tip to The Times' Nic Fildes), it's be several months before all of the red tape is sorted out, not to mention the likely impending agony of bolting together so many complex bits of kit. BT anticipates spending £500 million on rationalisation and synergy extraction. However, the canny analysts at TechMarketViews make an interesting value point here.

BT graphic1

'The value of cost and capex savings and synergies are notoriously difficult to estimate and deliver, but BT estimates them at £3.5 billion in net present value (NPV) terms, explains TechMarketViews' Peter Roe. 'This is more than twice the £1.2 billion NPV of expected revenue synergies from cross-selling.' That makes the £12.5 billion asking price which values EE at six-times 2014 EBITDA after deducting estimated synergies, look like a very good deal indeed.

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Issue Date: 05 Feb 2015