Orange and T-Mobile Merger in the UK
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Case Code: BSTR354 Case Length: 14 Pages Period: 2007-2009 Pub Date: 2009 Teaching Note: Not Available |
Price: Rs.300 Organization: Orange UK, T-Mobile UK Industry: Telecom Countries: UK Themes: Mergers and Acquisitions, Joint Ventures |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The T-Mobile / Orange UK merger has the potential to work beautifully, and all the ingredients are in place for the joint venture to be successful. The potential is there for the merger to deliver a massive network opex saving for the two partners, and it also puts new pressure on UK competitors such as Vodafone and O2, who may now be stuck with a high cost structure than their new rival - which [will]be reflected in their tariffs to customer."
-Bengt Nordstrom, Co-founder and CEO, Northstream, in September 2009.
"It's [merger with France Telecom is] probably positive (for Deutsche Telekom) and better than doing nothing. But whether it is the best option is debatable."
-Lawrence Sugarman at ING, in September 2009.
Introduction
On September 8, 2009, Deutsche Telekom AG (Deutsche Telekom), a Germany-based telecommunications company, and France Telecom SA (France Telecom), a France-based telecommunications company, announced that their respective UK subsidiaries, T-Mobile UK (T-Mobile) and Orange UK (Orange), would be merged into a 50:50 joint venture (JV). This was a bid to combat the increasing competition in the crowded telecom market in the UK. The new venture was expected to create the biggest mobile operator in the UK and pose a challenge to market leaders, O2 and Vodafone UK (Vodafone), according to experts.
Commenting on the merger, 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 synergies from the merger were expected to benefit both Orange and T-Mobile, according to experts. The JV would enable France Telecom to fortify its presence in the UK telecom market without incurring additional costs or debts. Besides, it would help Orange attain efficiencies in operation and increase its market share in the UK. The venture was expected to arrest the decline in the brand value of T-Mobile and thus benefit the company. Besides, Deutsche Telekom also aimed to cater to its customers with improved customer service. Orange went ahead with the deal with T-Mobile largely due to the perceived synergies between the two companies. The deal swung in favor of Orange since it was the only player that proposed a merger with T-Mobile; other bidders such as O2 and Vodafone had proposed to buy T-Mobile...
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