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BT Group Boosts its UK Defences Against Possible Takeover

Wednesday, October 27th, 2021 (7:52 am) - Score 7,296
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Broadband giant BT has reportedly hired advisory firm Robey Warshaw LLP to work alongside Goldman Sachs, which was appointed for a similar reason last year (here), to help boost their defences against a possible takeover attempt by Patrick Drahi’s Altice UK, which in June 2021 (here) acquired a 12.1% equity stake worth c.£2bn.

The 10th December 2021 is fast becoming an important date in the calendar because it marks the day when Altice UK will no longer be bound by a commitment it made not to launch a takeover bid for BT. “Altice UK has informed the BT Board that it does not intend to make a takeover offer for BT,” said the company in June 2021. But few ever took that seriously, not least because such statements are only considered binding for 6-months.

NOTE: Back when BT and EE merged the company’s shares were worth 441p, but today they’re 138p – making the operator worth c.£13.5bn.

A couple of months ago the German telecoms giant, Deutsche Telekom (DT), which has long been linked with speculation of a takeover attempt and also holds a similar 12% stake in BT, added further fuel to the fire of speculation by alluding to the possibility of a deal between DT, Altice UK and others for BT (here).

At the time DT’s boss, Tim Hoettges, said: “In the next 12 months something is going to happen there around [our 12% stake in BT] … We are entertaining all options. We have a lot of optionalities now on the table in the BT business. We will do something which is a good deal.” But any takeover would need to reflect a friendly approach in order to avoid a negative response from the UK Government, which is minded to protect key players in the British technology sector and will be weary of such a big deal.

According to Sky News, BT has now hired the same advisory firm that employs the former UK chancellor (George Osborne), Robey Warshaw LLP, to strengthen its defence against a potential takeover. Sources told Sky that BT’s board are sensibly planning for different scenarios, such as a formal takeover offer or a demand for BT to spin off its consumer division (i.e. BT, Plusnet and EE) or network access division, Openreach.

In the past, potential suitors have often ended up being discouraged by various concerns over the operator’s complex regulatory position, uncertainties around the outcome of Brexit, challenges due to massive debt (£18.6bn) and pension (£50bn) liabilities, as well as various other issues.

However, the market and BT have gone through a number of key changes over the past 1-2 years. For example, the new UK and EU trade deal has helped to make the post-Brexit future easier to predict. Openreach have also gained some longer-term regulatory certainty from Ofcom, which has enabled them to dramatically expand their £15bn rollout plans for Fibre-to-the-Premises (FTTP) broadband technology – aiming to cover 25 million UK premises by December 2026.

Furthermore, BT have made no secret of the fact that they’re looking at various options to held fund that effort (e.g. the sale of a minority stake in Openreach), but a takeover probably isn’t quite what they had in mind. The operator is also still trying to figure out a solution for their TV Sport business (sale or partnership), which many have often regarded as a distraction from their core telecoms and broadband business.

In short, BT has overcome some of the problems that often-discouraged potential bidders in the past, although there are still plenty of hurdles for a suitor to consider (e.g. the increasingly competitive full fibre market) and any play for the UK telecoms giant will still be a complicated affair. None of this means that such a bid would suddenly arise on 10th December, indeed if one is to surface then tentative early talks would probably occur first and a formal bid would then follow later in 2022.

 

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By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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14 Responses
  1. Phil says:

    Never liked BT from day one since British Telecom sold by Margaret Thatcher.

    1. Ex Telecom Engineer says:

      So you’d prefer to see the UK communications infrastructure owned by the likes of Goldman Sachs (CityFibre), or VMO2 (Liberty Global/Telefonica)? BT is among the few large cap publicly traded British companies left, its disappearance from the FTSE would be one of the final nails in UK PLC’s coffin. No doubt U.S. shareholders love seeing their companies given a leg up, while UK companies are held down by their own UK regulators, until they’re finally taken over on the cheap and broken up. The UK Government probably wouldn’t allow a BT takeover, but the more they weaken BT the less chance of BT investing in growth abroad. Most of the UK utilities are owned by foreign companies, no doubt Telecoms are heading in the same direction.

    2. Optimist says:

      Ownership of businesses is inreasingly being concentrated in fewer and fewer hands. But don’t worry – “you will own nothing and be happy” say the World Economic Forum!

    3. Fastman says:

      do you actually like anything ?

  2. John H says:

    Its Pension Fund size and its liabilities are its best defence, why pay to be told this.

  3. Chiny says:

    “Back when BT and EE merged the company’s shares were worth 441p, but today they’re 138p – making the operator worth c.£13.5bn.”

    Just in case anyone needed a reminder that M&A activity usually benefits those carrying it out (corporate advisors, company directors), not the shareholders.

    1. Mark Jackson says:

      To be fair, there were a lot of factors that hit BT’s share price since then and not all were related to their EE merger (e.g. accounting scandals, protracted regulatory uncertainty, growing market competition etc.).

    2. A_Builder says:

      “To be fair, there were a lot of factors that hit BT’s share price since then and not all were related to their EE merger (e.g. accounting scandals, protracted regulatory uncertainty, growing market competition etc.).”

      Any maybe also a total failure to invest in FTTP until the writing was on the wall in very, very large letters?

      Personally I think BT is massively undervalued and that the pension ‘defect’ won’t crystallise ever. Why? Because life expectancy gain are going to flatten out. All the actuarial tables, that are used, are based around increasing life expectancy. So it is a theoretical number. A theoretical number that has broken many, once great, companies.

    3. anonymous says:

      ‘Any maybe also a total failure to invest in FTTP until the writing was on the wall in very, very large letters?’

      Not really. They are well ahead of Deutsche Telekom. As long as it didn’t impact the bottom line most investors were indifferent, caring as they do purely about financials.

      FTTP build now is cheaper than it’s ever been and has a better business case. Had BT been able to sweat hybrid for another decade many investors would’ve loved it.

    4. A_Builder says:

      “Not really. They are well ahead of Deutsche Telekom. As long as it didn’t impact the bottom line most investors were indifferent, caring as they do purely about financials.”

      “FTTP build now is cheaper than it’s ever been and has a better business case. Had BT been able to sweat hybrid for another decade many investors would’ve loved it.“

      Having been on some of the investor calls: not so.

      Investors were getting spooked by the long term ROI on assets that could fall off a cliff: once the cliff edge was shown to them by the Alt Nets. Then having had a look At the drop over the cliff while only held aloft by GFast something akin panic set in.

      The investors well understand that FTTP (or any decent full fibre implementation) is a good long term bet as there is no visible sunset to its usefulness.

      That is the inevitable output of experience and scaling up.

      Previous estimates were based around ridiculous technology and bank paper idealistic assumptions. The kindest thing that can be said for them is that they were the most expensive believable costs.

  4. GNewton says:

    Would anybody miss BT or seriously still use it?

    What really should have happened ages ago is a genuine split between BT and Openreach.

  5. Nick Roberts says:

    Suppose Mr Drahi’s recent interest in BT is connected with the transition to VOIP with a view to securing the European landline part of the Starlink/Oneweb connection ?

    Is it his luming presence as a potential takeover owner of BT that has compelled them to bring forward their VOIP plans, or is this all per the original schedule – the reason for saying that is that I notice a mid-year firmware update for my BT Smart Hub included activation of its capability to support fibre (I haven’t asked for FTTP and only have FTTC and I was under the impression that the swop to VOIP wasn’t occurring until 2025).

    I wonder if BT are intending, to operate VOIP over FTTC early doors as part of a take-over defence . . . if an announcement was forthcoming before December then Mr Drahi (Plus others) might have to pay more for acquiring a majority holding in BT.

    Further, I just wonder is this is a potential buyers’ counter to increased share offer price and pre-emptively nobbling the competition:-

    https://www.ispreview.co.uk/index.php/2021/10/voip-provider-voipfone-uk-knocked-out-by-ddos-attack-again.html

    Even if BT fends a TO bid off, Mr Drahi still wins when he cashes in his 12.5% share holding.

    How the West was Won . . and HMG and USG were worried about Chinese influence . . hah !

    Chancellor missed a trick today “Windfall” tax on shareholdings held exclusively for corporate manoevre operations

    1. anonymous says:

      They have been doing Digital Voice over FTTC since 2019.

      It’s gotten more widely spread since the SoGEA product became a thing.

  6. Dan157 says:

    RIP the days when bt group share price was higher. I used to get more paid out.

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