Deutsche Telekom AG — M&A Activity 2009

Sep 8, 2009

News Details

Ad-hoc | 8 September 2009 07:31

Deutsche Telekom AG: Deutsche Telekom and France Telecom plan to merge T-Mobile UK and Orange UK to create a new mobile champion

Deutsche Telekom AG / Joint Venture

08.09.2009

Dissemination of an Ad hoc announcement according to § 15 WpHG, transmitted by
DGAP - a company of EquityStory AG.
The issuer is solely responsible for the content of this announcement.

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Information of Deutsche Telekom AG in Accordance with § 15 WpHG

London, Bonn and Paris, 8 September, 2009

Deutsche Telekom and France Telecom plan to merge T-Mobile UK and Orange UK
to create a new mobile champion

Deutsche Telekom and France Telecom today announce that they have entered
into exclusive negotiations to combine T-Mobile UK and Orange UK in a new
50:50 joint venture company.

The new joint venture will create the UK's leading mobile operator. It will
have a combined mobile customer base of around 28.4 million, representing
approximately 37 percent of UK mobile subscribers, based on figures at end
December 2008 (customer figures for T-Mobile UK excluding Virgin Mobile
customers). By integrating Orange's broadband activities, the joint venture
will also have the capabilities to offer convergent solutions to its
customers in the future. The business will have pro forma 2008 revenues of
approximately EUR 9.4 billion (GBP 7.7 billion) and EBITDA of EUR 2.1
billion (GBP 1.7 billion) (Exchange rate for pro forma figures based on
average exchange ratio 2008 of EUR 1.25/GBP. All other financials based on
actual exchange ratio of EUR 1.14/GBP).

The merger and integration of T-Mobile UK with Orange UK should generate
estimated synergies with a net present value in excess of EUR 4.0 billion
(GBP 3.5 billion).

Estimated opex-based synergies should reach an annual run rate of over GBP
445 million from 2014 onwards.
To achieve these opex synergies, the joint venture would expect to invest
GBP 600 to GBP 800 million in integration costs over the period from 2010
to 2014. Those costs would primarily relate to the decommissioning of
mobile sites, the rationalisation of the network of retail stores and the
streamlining of operations.

On the capex side, large scale savings are expected over the first five
years following completion of the transaction, resulting from the
integration and unification of the networks and from jointly expanding 3G
coverage. The potential for capital expenditure savings, net of integration
capex, is estimated at GBP 620 million on a cumulative basis over
2010-2014, prior to stabilising at approximately GBP 100 million a year
from 2015 onwards.

To create the new joint venture, Deutsche Telekom would contribute T-Mobile
UK on a cash-free, debt-free basis, including T-Mobile UK's 50 percent
holding in its 3G network joint venture with Hutchison and gross tax losses
carried forward of at least GBP 1.5 billion. France Telecom would
contribute the whole of Orange UK including GBP 1.25 billion of intra-group
net debt in order to equalize the value of the contributions to the joint
venture. Immediately after closing Deutsche Telekom would grant a GBP625
million shareholder loan to the joint venture, which would be used to
simultaneously reimburse GBP 625 million to France Telecom. As a result,
the joint venture would have indebtedness of GBP 1.25 billion, represented
by two shareholder loans of GBP 625 million held by each of Deutsche
Telekom and France Telecom.

This transaction is expected to create substantial value for both
shareholders and to be accretive from 2010 in terms of free cash-flow per
share and from 2011 in terms of earnings per share. Both Deutsche Telekom
and France Telecom would recognise their respective interest in the joint
venture using the equity method after closing. It is planned that the joint
venture will distribute 90 percent of its free cash flow to its two
shareholders.

Prior to the signing, which is expected to be end of October, both Deutsche
Telekom and France Telecom will undertake confirmatory due diligence and
will complete the definitive documentation. The final agreement is subject
to the approval of the Supervisory Board of Deutsche Telekom and the Board
of Directors of France Telecom, and the completion of an agreed transaction
would be conditional on approval by the relevant competition authorities.

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Information and Explaination of the Issuer to this News:

This press release contains forward-looking statements that reflect the
current views of Deutsche Telekom management with respect to future events.
These also include statements on market potential, statements on finance
guidance, as well as on the dividend outlook. They are generally identified
by the terms 'expect,' 'anticipate,' 'believe,' 'intend,' 'estimate,' 'aim
for,' 'goal,' 'plan,' 'will,' 'strive for,' 'outlook' or similar
expressions and often include information that relates to net revenue
expectations or targets for adjusted EBITDA, profit or loss, earnings
performance and other indicators, as well as personnel-related measures and
workforce adjustments. Forward-looking statements are based on current
plans, estimates, and projections. They should therefore be considered with
caution. Such statements are subject to risks and uncertainties, most of
which are difficult to predict and are generally beyond Deutsche Telekom's
control, including those described in the sections 'Forward-Looking
Statements' and 'Risk Factors' of the Company's Form 20-F annual report
filed with the U.S. Securities and Exchange Commission. Among the relevant
factors are the progress of Deutsche Telekom's workforce reduction
initiative, the restructuring of operating activities in Germany, and the
impact of other significant strategic or business initiatives, including
acquisitions, dispositions, business combinations, and cost reduction
measures. In addition, regulatory decisions, stronger than expected
competition, technological change, litigation and regulatory developments,
among other factors, may have a material adverse effect on costs and
revenue development. Furthermore, changes in the economic and business
environments - for example, the current economic slump - in markets where
we, our subsidiaries and affiliates operate, the enduring instability and
volatility on the global financial markets, as well as exchange rate and
interest rate fluctuations can also adversely affect our business
development and the availability of capital at favorable terms. If these or
other risks and uncertainties materialize, or if the assumptions underlying
any of these statements prove incorrect, Deutsche Telekom's actual results
may be materially different from those expressed or implied by such
statements. Deutsche Telekom can offer no assurance that its expectations
or targets will be met. Deutsche Telekom does not assume any responsibility
for updating forward-looking statements by taking new information or future
events or other matters into account. Deutsche Telekom does not reconcile
its adjusted EBITDA guidance to a GAAP measure because it would require
unreasonable effort to do so. As a rule, Deutsche Telekom does not predict
the net effect of future special factors due to their uncertainty. Special
factors and interest, taxes, depreciation and amortization (including
impairment losses) can have a significant effect on Deutsche Telekom's
results.

In addition to figures prepared in accordance with IFRS, Deutsche Telekom
presents non-GAAP financial performance measures, including EBITDA, EBITDA
margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBT, adjusted net
profit, free cash flow, gross debt, and net debt. These non-GAAP measures
should be considered in addition to, but not as a substitute for, the
information prepared in accordance with IFRS. Non-GAAP financial
performance measures are not subject to IFRS or any other generally
accepted accounting principles. Other companies may define these terms in
different ways. For further information relevant to the interpretation of
these terms, please refer to the chapter 'Reconciliation of pro forma
figures' posted on Deutsche Telekom's website [www.telekom.com] under the
link 'Investor Relations.'

08.09.2009 Financial News transmitted by DGAP

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Language: English
Company: Deutsche Telekom AG
Friedrich Ebert Allee 140
53113 Bonn
Deutschland
Phone: +49 (0)228 181-88880
Fax: +49 (0)228 181-88899
E-mail: investor.relations@telekom.de
Internet: www.telekom.com
ISIN: DE0005557508
WKN: 555750
Indices: DAX, EURO STOXX 50
Listed: Regulierter Markt in Berlin, Frankfurt (Prime Standard),
Düsseldorf, München, Hannover, Stuttgart, Hamburg;
Terminbörse EUREX; Foreign Exchange(s) Amsterdam, London,
NYSE, Tokyo

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