T-Mobile, Orange in UK merger deal

       Deutsche Telekom AG and France Telecom SA said yesterday they intended to combine their British mobile phone units - T-Mobile UK and Orange UK - to form the country's biggest mobile operator.
       Deutsche Telekom said the two companies have entered exclusive negotiations on combining its struggling UK unit with France Telecom's in a 50-50 joint venture.
       The announcement follows reports that Telefonica of Spain, owner of UK market leader O2, and No.2 Vodafone Group PLC had made informal offers of about ฃ4 billion ($6.5 billion) for T-Mobile.
       The combined company would have a customer base of 28.4 mobile phone users, or about 37% of UK mobile subscribers at the end of 2008.
       That would overtake O2, which has a 27% share of the UK market. Vodafone is second with 25%. Orange has 22%,T-Mobile 15% and Hutchison Whampoa's 3 has 8%.
       In May, Deutsche Telekom reported a first-quarter loss of 1.1 billion ($1.58 billion) which it blamed in part on intensifying competition, especially in the UK.
       Jonathan Groocock, an analyst at Investec Securities, said a deal could benefit the entire British mobile sector.
       "The final outcome would be improved market returns for all parties as margins could stabilise," he said in a research note to clients.
       The proposed deal "is expected to create substantial value for both shareholders," Deutsche Telekom said in a statement. It added that it expected the merger to generate synergies with a net present value of more than ฃ3.5 billion ($5.7 billion).
       Signing of a deal is expected at the end of October, and its completion would be subject to approval by antitrust authorities, Deutsche Telekom said.
       The business had combined 2008 revenue of some ฃ7.7 billion and earnings before interest, tax, depreciation and amortisation of ฃ1.7 billion, Deutsche Telekom said.
       Bonn-based Deutsche Telekom said it would contribute T-Mobile UK to the merged firm "on a cash-free, debt-free basis," including the British unit's 50%holding in a 3G network joint venture with Hutchison and gross tax losses carried forward of at least ฃ1.5 billion.
       France Telecom would contribute Orange UK, including ฃ1.25 billion of intragroup net debt,"in order to equalise the value of the contributions to the joint venture," the statement said.
       Once the deal closes, Deutsche Telekom would grant a ฃ625 million shareholder loan to the joint venture, which it said would be used to reimburse ฃ625 million to France Telecom.
       The joint venture would have total debt of ฃ1.25 billion, represented by shareholder loans of ฃ625 million each held by Deutsche Telekom and France Telecom, the statement said.