Deutsche Telekom AG and France Telecom are in negotiations to combine their UK mobile operations into a new 50-50 joint venture, the German company said this morning.
The move follows an announcement by Deutsche Telekom earlier this year that it was considering its options for the UK unit, which has struggled in the highly competitive market, in which five operators and several smaller players compete.
For France Telecom, the deal is a way to strengthen its position in the ultra-competitive UK market without paying cash or taking on more debt.
Reuters had reported yesterday that the two companies were expected to announce exclusive talks to form a joint venture.
The merger and integration of Deutsche Telekom's T-Mobile UK with France Telecom's Orange UK is expected to generate estimated synergies with a net present value in excess of €4 billion ($5.74 billion).
The transaction, to be signed by the end of October, is expected to be accretive from 2010 in terms of free cash-flow per share, and from 2011 in terms of earnings per share.
Analysts have been divided over the merits of a joint venture or a straight sale, with some arguing that a joint venture could be complicated unless one group takes control.
But Daiwa analyst Michael Kovacocy said Deutsche Telekom was unlikely to get the asking price it was hoping for, and that a joint venture may be preferable to avoid a further writedown.
Reuters