The future is bright

8 September 2009 By Una Galani Follow @ugalani

The 5050 joint venture of Deutsche Telekom and France Telecom s UK operations will create a clear leader in an overcrowded market. Even rivals appear to welcome the prospect of less destructive competition. The challenge will be to keep the perfectly balanced management united.

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France Telecom and Deutsche Telekom on Tuesday announced that they have entered exclusive negotiations to combine their UK mobile phone operations into a 5050 joint venture, creating an operator with a leading 37% share of UK mobile revenues.

DT will contribute the operating assets of its TMobile UK unit to the joint venture, without cash or debt but with at least £1.5bn of gross tax losses. FT will contribute its Orange UK operations, and will include £1.25bn of intragroup net debt to equalise the contribution.

Upon closing, DT will also issue the joint venture with a £625m shareholder loan which will be used to refinance simultaneously half of the debt contribution from FT. As a result, the joint venture will have £1.25bn net debt held equally by FT and DT.

The TMobile UKOrange UK joint venture is expected to generate synergies with a net present value of £3.5bn. Operating based synergies are expected to reach £445m from 2014 at a cost of up to £800m.

Orange UK chief executive Tom Alexander retaining his current title and TMobile UK head Richard Moat will be chief operating officer. The board will be split evenly between DT and FT representatives.

FT and DT expect to sign a definitive agreement by October and to conclude the deal within the first half of 2010, pending regulatory clearance from UK regulator Ofcom.

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