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Orange cuts and runs from UK, as BT shares fall

Orange has cut and run out of its shareholding in British Telecom, after a year of share price nose dives caused by Brexit, job cuts and an Italian accounting scandal.

Today BT is worth just £28 billion and its share price is at £281, while when the deal for BT to buy EE, which led to a 4% Orange shareholding its share price was £433. Orange received £3.4 billion in cash and a 4% stake in the combined BT/EE entity for its half of EE. Deutsche Telekom did a similar deal, but made it clear that it was happy to remain a long-time partner for BT.

The deal is a complicated one, selling a third of its stock to BT and another third against a new bond. Orange will sell some stock directly to BT part of which for the benefit of its Employee Share Ownership Trust, and Orange will supply all of these shares, with BT shelling out some £200 million and another £520 million will be issued in bonds due 2021 to buy another third of the Orange stock, but bondholders can choose to remain with the debt rather than swap for shares until they are due. This deal will leave Orange, once complete with a 1.33% shareholding in BT.

The original EE purchasing deal came about in February 2015 after BT had virtually blackmailed all MNOs in the UK with an MVNO and WiFi First arrangement with which it intended to crash UK cellular pricing, if one of O2 or EE was not sold back to it. It has over 5 million Community WiFi Hotspots (homespots) in the UK and the effect would have had something like the influence Iliad’s Free had on French cellular pricing back in 2012.

It immediately dis-incentivized both O2 and EE from wanting to remain in the UK and both entered negotiations with BT, with EE being the eventual winner. Since then BT has relented, knowing that if it brings its WiFi power to bear on cellular it would crash EE pricing also.

BT paid around £12.5 billion in cash and shares to buy EE. If it had waited until Brexit had been voted on, it is likely it would never have been able to get back into cellular services.

The Deutsche Telekom part of the deal was always supposed to be longer term, as it became the largest shareholder in BT, owning around 12% and Tim Höttges, CEO at DT added, “We are laying the foundations for our two companies to work together in the future,” something entirely missing from the Orange release at the time.

The pressure brought to bear by BT was one of fixed line dominance in the UK, but it had that for years. It was only when each MNO thought about fighting against its core backhaul provider, which had massive WiFi assets and had also licensed much of the top UK Sports content at BT Sport. So video was the catalyst.

The cellcos imagined trying to fight off customer churn in a market where the tempting offers of “free TV” or better still, “free TV with the top sport content” being given away with every broadband line, followed by cheap cellular for the entire family.”

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