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BT Reportedly Preparing to Defend Against £15bn Takeover Attempt

Saturday, August 22nd, 2020 (4:50 pm) - Score 10,236
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Mainstream media reports have today claimed that a number of major private equity firms are exploring the possibility of making a joint bid for the whole BT Group, which could be worth up to £15bn. In response the operator has reportedly asked Goldman Sachs to update its bid defence strategy.

At present BT’s market capitalisation is estimated to be around £10bn, although a fair few analysts believe that the company is undervalued following a string of problems over the past few years. Meanwhile the Government’s recent decision to ban Huawei from the 5G mobile network, as well as a suspension of their dividend (partly to help fund the £12bn roll-out of FTTP broadband technology) and the COVID-19 crisis hasn’t helped.

NOTE: Back when BT and EE merged the company’s shares were worth 441p, but today they’re just 101p and analysts believe that 200p would be more reflective.

On the other hand, we have to consider that the operator has some £50bn in pension liabilities and £18bn in net debt. Normally all of that, when combined with its significant regulatory obligations to Ofcom, would be enough to discourage most potential buyers. Despite this several sources appear to have told Sky News that the operator’s currently weakened position may outweigh those traditional bugbears.

Admittedly this isn’t the first time that BT has become the subject of takeover rumours (Deutsche Telekom is often linked to such an idea due to their 12% stake), but so far none of those have amounted to anything. Back in May 2020 there was also a widely reported suggestion that BT could sell a stake in its Openreach division (alone OR could be worth up to £20bn) to help fund their fibre roll-out (here), which was strongly refuted by the operator.

The situation today is that BT are perhaps more vulnerable to a takeover attempt than they have been at any point in the past decade, but it remains to be seen whether one is actually tabled. The operator may just be doing their normal due diligence by allegedly updating their bid defence strategy, if that has indeed occurred.

Furthermore, the Government has recently been signalling their desire to protect key players in the British technology sector and any bid for BT is likely to be politically tedious, due to their position in the UK telecoms market. No doubt a lot would be demanded of any potential buyer and that in itself could be a discouragement. Once again, we advise a few pinches of salt.

 

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36 Responses
  1. Avatar A_Builder says:

    It is very difficult to see how more aversive management would help in a tightly regulated and unionised environment.

    The present team is doing pretty well: the old team wasn’t.

    I’d counter that by saying that the pensions thing is overblown as the hole is really nowhere near that big. The hole is a worst case scenario assuming everyone lives ever longer lives – which is tailing off anyway. It always amazes me that pension liabilities are calculated the way they are in some massive and expensive exercise: software is perfectly capable of giving real time lifespan information and therefore payout years.

    I’d not be too surprised given the flattening of lifespan increases if the fund wasn’t getting pretty close to balanced by now.

    1. Avatar Bill says:

      You assume that software hasn’t already done the analysis and come to the conclusion that the pension liability is … huge.

    2. Avatar A_Builder says:

      @Bill

      I’m referring to the five yearly ‘valuation’ exercise which costs a fortune…..

    3. Avatar FibreBubble says:

      The present team have seen the share price more than half on their watch despite starting from an already very low point.

      Capitalises at 8bn less than Orcado.

      Something has got to give.

    4. Avatar Ivor says:

      @FibreBubble

      “Orcado” has hype on their side – they can throw out all the usual buzzwords and capitalise on the ongoing tech bubble by claiming they’ll revolutionise food retail. As will Amazon, apparently.

      BT isn’t as sexy – they’re a boring old infraco with a large retail ISP arm and an ailing global services sector. Arguably more beneficial to UK society than yet another online supermarket or the Googles and Amazons of the world – but that’s not reflected in the share price – which is only barely attached to reality at the best of times.

      The current team has at least recognised that the copper needs to go – though I suspect you’ll disagree based on that username. Short termist shareholders might not like it, but tough.

      What’s got to give, exactly?

    5. Avatar FibreBubble says:

      Either the current management will have to go or they will get taken over and probably broken up. The city clearly has no faith in the current team. Shareholders can’t watch their investment slide forever.

      I note that in the age of virus, the current team are building massive battery farms of centres of infection for desk based staff and making their current desk based diverse sites redundant. Pretty typical of this team. Wrong people at the wrong time.

  2. Avatar A_Builder says:

    *agressive

  3. Avatar NE555 says:

    5 years ago it touched 500p per share. Now it’s down to about 100p per share – below its initial flotation price of 130p per share in 1984. A sad story indeed.

    1. Avatar occasionally factual says:

      You cannot just look at the share price to see what a company is worth or compare the price over time. You need to look at the Market Capitalisation. (Basically share price * number of shares)
      So the company is worth more than when it was floated (£10.1bn today versus £7.8bn at float) but it is currently worth under a third of its peak market cap.

    2. Avatar NE555 says:

      True, but also remember £7.8bn in 1984 would be over £25bn in today’s money, so effective market cap has more than halved.

      https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator

    3. Avatar occasionally factual says:

      But if you have owned shares from day 1, then you need to calculate a lot more than just the market capitalisation to work out if you have profited or not from ownership. You need to look at dividends, rights issues etc to work out what you have paid out to what the shares have returned or potential returns.
      Indeed a whole industry does that. Just looking a a single value in time doesn’t show the true value to the share holder.

  4. Avatar a welshman says:

    when i started working for them is 1997 shares were £15

    1. Avatar MartinConf says:

      Fake News, the highest share price in 1997 was £3.51p

    2. Avatar The correction says:

      Both wrong. The highest the share price reached was over £15 between 1999-2000 around the dotCom bubble.

      https://www.fool.co.uk/investing/2014/01/10/can-bt-group-plcs-share-price-return-to-1513p/

    3. Avatar CarlT says:

      Mr Conf informed of the highest share price during 1997.

      What it was during the crazy times a couple of years later isn’t really relevant to that.

      It’s not really relevant to anything. Tulip mania: telecommunications edition.

  5. Avatar FibreFred says:

    Same rumours in jan 2019. Probably won’t hurt the share price.

  6. Avatar CarlT says:

    It’s an odd thought that Liberty Global paid more for Virgin Media – network passing less than half the UK, virtual mobile network only, than is being mooted as a bid for BT Group, mobile network and all.

    However as stated anyone wanting to purchase the company would be taking on £19 billion of debt making the enterprise value of such a deal with the price mentioned £34 billion.

    Pension liabilities weigh heavy, too.

    May well be worth hanging back from a bid for now, though. Give it 4 months and Sterling may be considerably weaker against the US Dollar than it is now, making BT Group a cheaper proposition still.

    1. Avatar Matthew says:

      Very true but the issue with BT at the moment is not just the big debt issues but the regulatory issues and the factor any new owner is going have to make serious investment over the next decade else it will be a wasted takeover as the assets on the fixed line market will become near worthless. Where as Virgin at the time was basically fine in terms of huge investment they had a network that was at the time the best in the areas they were present in. Plus there is going be even more competition in next few years for BT now that there is a going be a third significant broadband supplier.

    2. Avatar GNewton says:

      @CarlT: “It’s an odd thought that Liberty Global paid more for Virgin Media”

      Not really. BT’s ultrafast broadband ISP network only covers 5.81 million UK premises. And not all of it is fibre.

      BT has been more than a decade too late with proper fibre investments. With all its past wrong decisions it’s not surprising to see its low share price today.

    3. Avatar CarlT says:

      Copy/paste. Copy/paste. Rinse. Repeat.

      Either this must be even more boring to write than it is to read, and you’ve an extraordinary tolerance for boredom, or there is an issue with memory in play.

      Regardless endlessly repeating the same thing over and over again adds nothing new and has become nothing more than trolling.

      If you have nothing new to add to discussions feel free to not participate.

    4. Avatar GNewton says:

      @CarlT: Feel free to complain to the forum moderator if you think any posts are offensive here.

      For others, see this link on BT’s ultrafast coverage:

      https://www.ispreview.co.uk/index.php/2020/07/bt-raise-uk-ultrafast-broadband-cover-to-5-81-million-premises.html

      And yes, even if you don’t like it: BT is quite a latecomer with regards to fibre deployment, for various reasons. And any new owner of BT will have to invest a lot of money into replacing its old network infrastructures, more so than was the case with Liberty Global with VM.

    5. Avatar Steve says:

      Is that you again JNeuhoff?

    6. Avatar FibreFred says:

      When I read Gnewton / JNeuhoff posts I sometimes wish carpetburn would come back. At least he mixed it up a bit when trolling.

  7. Avatar James Warner says:

    BT is going downhill and will soon be under the dark cloud of administration. It’s never been so obvious. Goodbye BT.

    1. Avatar Buggerlugz says:

      Would certainly shake up the sector if that happened. The government would always bail out BT if it had too though, too many of their friends have vested interests in it. Couldn’t let them lose out.

    2. Avatar Fastman says:

      stupid and riduculous beyond belief that comment

      BT is going downhill and will soon be under the dark cloud of administration. It’s never been so obvious. Goodbye BT.

    3. Avatar André says:

      Don’t feed the troll, Fastman 🙂

    4. Avatar A_Builder says:

      The Crown Guarantee only applies to the pension fund.

      Something like BT never goes into administration – it has a secure income stream so it is worth something to someone.

      The only advantage of an engineered insolvency would be to get rids if baggage that you didn’t want.

      As it stands it is looking very undervalued – the value will sharply increase as soon as FTTP uptake rises – this validating that bet. The other number that will help is a drop in OPEX as copper is withdrawn and the electricity bill reduces!!

      If I was on the top floor of BT Central I’d be doing more to share the projected savings and efficiencies of an all fibre network with the market. Inevitably there will be a high/low/median graph some of which depends on regulation.

      Everyone is cool with the present CAPEX rollout cost/passed so that isn’t the weight on the share price. Other are investing at much higher costs.

    5. Avatar Fastman says:

      andre’ good call

  8. Avatar Fastman says:

    buggerlugz

    still something called crown guarantee as well

    1. Avatar Buggerlugz says:

      That only protects the pension fund.

  9. Avatar Chris Sayers says:

    Honestly I think BT is doing a pretty good job at the moment, they have more competition from other players, that has to be good, I am not sure the government will be keen on BT being taken over, with the amount of regulation in place, I don’t know how it would be a profitable take over.

    It’s going to take another 15 to 20 years to write down the pension liabilities possible longer, I think it’s current share price is correct for its current financial liabilities.

  10. Avatar Scott says:

    I can’t see Vodafone being able to progress a purchase due to competition issues. The effective outcome would be to have 2 of the 4 main mobile operators under 1 parent company. I don’t think Voda would want to jump through the hoops required.

    I semi expect that this is a strategy move by Vodafone to gain a piece of Openreach. I wouldn’t be surprised if this kick starts the defensive sell off of a minority stake that re-capitalises BT and Openreach’s fibre first program.

  11. Avatar BTareShat says:

    BT for sale ? wow here is 50p and i think i might have over paid for it

  12. Avatar Remus says:

    Quite honestly I don’t think the UK Gov will allow the purchase of a strategic national asset by a foreign company. It maybe the case Vodafone might consider buying into the Organisation…..they have the capital in which to do so. As actual Brexit approaches, IMHO it is more likely UK Gov will take a stake in OR or Group as a whole and that might be a better way to spend the £5bn public subsidy proposed to get Gigabit capable services out to everyone.

    My money is def on the Gov rejecting any takeover by a foreign entity.

  13. Avatar Nicholas Creer says:

    Hi Admin
    The Corporate Insolvency and Governance Bill
    https://www.qredible.co.uk/b/corporate-insolvency-governance-bill/

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