Deutsche Tel, France Tel Merge U.K. Units

Updated from 2:13 a.m. EDT

BONN, Germany (TheStreet) -- Deutsche Telekom's(DT Quote) T-Mobile U.K. division and France Telecom's (FTE Quote) Orange U.K. will be combined in a 50-50 joint venture, as the companies confirmed Tuesday they are in exclusive negotations.

The combination of the two telecommunications firms would create the U.K.'s leading mobile operator, according to the companies, and will have a mobile customer base of about 28.4 million, or about 37% of U.K. mobile subscribers. It will overtake Telefonica's(TEF Quote) 02 as the U.K.'s largest mobile operator, according to reports.

The companies said the merger of the firms should create synergies of more than 4 billion euros ($5.74 billion). The joint venture plans to invest 600 million to 800 million pounds ($982.7 million to $1.3 billion) to decommission certain mobile sites and streamline operations.

Deutsche Telekom said the transaction is "expected to create substantial value for both shareholders." The deal is anticipated to be accretive from 2010 in terms of free cash flow per share and add to earnings from 2011.

The deal is expected to be signed by the end of October.

Deutsche Telekom said it would contribute T-Mobile U.K. on a cash-free, debt-free basis, including the unit's 50% holding in its 3G network joint venture with Hutchison and gross tax losses carried forward of at least 1.5 billion pounds.

France Telecom would contribute Orange U.K. including 1.25 billion pounds of intra-group net debt "in order to equalize the value of the contributions to the joint venture," the companies said.

After the deal closes, Deutsche Telekom would grant a shareholder loan of 625 million pounds to the joint venture, which would then be used to reimburse 625 million pounds to France Telecom. As a result, the joint venture would have debt of 1.25 billion pounds, represented by two shareholder loans of 625 million pounds held by Deutsche Telekom and France Telecom.

It was speculated earlier this year that Deutsche Telekom might sell T-Mobile U.K., as it said it was examining all options for the division.

-- Reported by Joseph Woelfel in New York .

Follow TheStreet.com on Twitter and become a fan on Facebook.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting