BT to decide this week on EE or O2

Europe's most senior telecom dealmakers chartered flights into the City of London this weekend to thrash out takeover talks with BT.

In the next few days, the telecom giant is expected to reveal whether it will buy EE or O2 in what will mark the biggest shake-up of the UK mobile sector in recent history.

Executives from France Telecom and Deutsche Telekom are understood to have flown in on the heels of the chairman of O2 owner Telefonica, Cesar Alierta, who visited London last week as part of his efforts to seal a deal over the weekend.

“Everyone is in town for this”, one source said.

BT has reportedly favoured a deal with O2 but sources close to the situation have said that it was still open to a potential combination with EE.

Industry sources and investors have praised BT chief executive Gavin Patterson’s decision publicly to play off O2 and EE against each other, as it gives the company the strongest negotiating position possible. A takeover of O2 is widely seen as a more straightforward deal. In contrast, EE is joint-owned by French operator Orange and Germany’s Deutsche Telekom and the two sides have frequently had opposing views about the future of EE.

A deal with O2 would also be cheaper, at around £9.4bn based on seven times its earnings, whereas BT could have to fork out up to £12bn for EE.

However, EE would bring BT more customers and is thought to have a more valuable network after significantly investing in mobile spectrum.

It was said that there is still EE takeover interest from Tom Alexander, the former boss of EE, and private equity firms KKR and Apax, but they are determined not to be used as a stalking-horse and will want EE’s owners to decide on next steps should BT opt against a takeover. All parties involved declined to comment.

Four reasons BT should buy O2

BT is expected to use its own shares to finance part of a takeover although some of its biggest shareholders have signalled that they would be willing to take part in a rights issue to finance a mobile deal.

A takeover of either company will see BT re-enter the mobile market more than a decade after its decision in 2001 to spinoff O2, then BT Cellnet to pay down debts.