BT 2016 Annual Report Download - page 221

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Overview The Strategic Report Governance Financial statements Additional information
Notes to the company financial statements
1. Investments in subsidiary undertakings Total
£mCost
At 1 April 2014 10,616
Additions 70
At 31 March 2015 10,686
Additions 11,029
Disposals (10,971)
At 31 March 2016 10,744
On 29 January 2016, the company acquired the entire share capital of EE Limited (EE) from T-Mobile Holdings Ltd, which is
owned by Deutsche Telekom A.G. (DT), and Orange Telecommunications Group Ltd (Orange), in exchange for the issue of 1,595m
Consideration Shares and £3,464m cash. The value of the Consideration Shares and cash allotted to DT and Orange at completion was
£10,971m. Subsequently on 29 January 2016 the company sold its entire investment in EE to its wholly owned subsidiary, British
Telecommunications plc at fair value in exchange for an intercompany loan.
Also included within additions is £58m (2014/15: £70m) capital contribution in respect of share-based payments.
The company held a 100% investment in BT Group Investments Limited, a company registered in England and Wales, throughout
2015/16 and 2014/15.
2. Merger reserve
On 29 January 2016, the company issued 1,594,900,429 ordinary shares of 5p at 470.7p per share resulting in a total of £80m being
credited to Share capital.
These shares were used as part consideration for the acquisition of EE, which completed on 29 January 2016 (note 1 above and note 14 to
the consolidated financial statements). As a result of this transaction, a merger reserve was created of £7,424m, net of £3m issue costs. The
acquisition of EE was structured by way of a share-for-share exchange and cash. This transaction fell within the provisions of section 612
of the Companies Act 2006 (merger relief) such that no share premium was recorded in respect of the shares issued. The company chose to
record its investment in EE at fair value and therefore recorded a merger reserve equal to the value of the share premium which would have
been recorded had section 612 of the Companies Act 2006 not been applicable (ie equal to the difference between the fair value of EE and
the aggregate nominal value of the shares issued).
This merger reserve was initially considered unrealised on the basis that it was represented by the investment in EE which is not considered
to be qualifying consideration (in accordance with Tech 02/10 (Guidance on the determination of realised profits and losses in the context
of distributions under the Companies Act 2006)).
Immediately following the acquisition of EE, the company transferred its investment in EE to its wholly owned subsidiary British
Telecommunications plc in exchange for an intercompany loan. To the extent the loan is settled in qualifying consideration, the related
proportion of the merger reserve is considered realised. Hence the merger reserve is an unrealised profit until it is realised by the
settlement of the intercompany loan by qualifying consideration.