BT Holding Talks to Acquire British Mobile Carrier EE for $19.6 Billion (Bloomberg). For those that have been following BT including when they acquired the 4G licences. It was with delight to have spotted the potential of BT.A's licences for 2x15MHz of FDD and 20MHz of TDD 2.6GHz spectrum and how savvy the buy was yet pooh-poohed by most as it being akin to a conspiracy. The start of the pure-quad-play...
The problem that BT.A have at the price tag suggested is the amount of shares to be issued, today saw 400 pence support breached. Its rare for me to believe in companies of this size. The offering is significant for BT.A but its wise to sideline (money off the table) until events unfold. With the risks associated with Sky having to overpay to maintain share, BT.A's auction price in the event it wins, and Vodafone's lack of UK strategy, its wise to consider the risks. BT could have some potential tax savings in the deal as well...with various elements provided by Irish Companies.
Any deal with EE should be considered in how gunned up BT.A want to stay to bid in the PL (Premier League) auction. The % cash element for the deal will give an indication of how aggressive it wants to be in the auction process. Its still maintained the above licenses plus EE's (or O2's as this could be a clever play) will change the offering. Personally, watching something on a mobile weather sports or a video longer than 30s is just one step away from never leaving the house. We'll need park assist for our bodies as we'll never look up!
Sky's biggest problem is how much they can pay without overpaying. With the total bids set to be near £4 billion in total Sky's cost per user is likely to be well ahead of BT.A's unless a decent JV can be organised with Vodafone sharpish. Can Sky afford to pay £3 billion for 126 games in a various mix, the favoured and potentially more expensive being the Friday games package of 10+4 others. BT.A's EE deal plus ambitions means they're not going in with a view to acquiring just 28 games. Fair play to the premier league...(I know). This auction is guaranteed to do the most damage to Sky in the event of failure, conservative estimates of 650 pence, 25% drop would be a best case scenario. BT's potential and pricing have just increased with this mobile deal that in its current form Sky don't have the luxury of.
Over to Sky to a) acquire O2 b) be acquired or c) be a significant also ran, the risks to Sky without a shadow of a doubt mean there's materially more downside than warrants holding long, even if they won 50% of the PL auction, due to the absolute overpayment they must make. Expect some news from Sky very soon on strategy, they're running out of choices.
Speaking today, it was interesting that Vodafone was suggested as a wild card bidder today for PL rights...? Stranger things have happened.
Atb Fraser
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