BT Takeover Fears Mount as Altice UK Boost Stake to 18 Percent UPDATE

Broadband giant BT, which has recently been busy boosting their defences against a possible takeover attempt by Patrick Drahi’s Altice UK, has today reported that the investor has raised their 12.1% stake in the operator (worth c.£2bn) to a total of 18%.

The end of last week was an important date in BT’s calendar because it marked the point where Altice UK would 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.

Since then, BT is widely reported to have hired the same advisory firm that employs the former UK chancellor (George Osborne), Robey Warshaw LLP, to work alongside Goldman Sachs and strengthen its defence against a potential takeover.

The operator’s board are understood to have been 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). The big move itself hasn’t come today, but Altice UK has given a pretty big indication of their desire to do more than just quietly sit on their stake.

BT Statement

The Board of BT Group has been notified that Altice UK has increased its interest in BT Group’s voting share capital from 12.1% to 18.0%.

The Board and management of BT Group will continue to operate the business in the interest of all shareholders and remains focussed on the successful execution of its strategy and building on recent performance momentum.

A Government spokesperson said:

“The Government notes the latest acquisition of BT shares by Altice. We are monitoring the situation carefully.

The Government is committed to levelling up the country through digital infrastructure, and will not hesitate to act if required to protect our critical national telecoms infrastructure.”

Altice UK Statement

“We are pleased to take this opportunity to increase our shareholding in BT. Over recent months we have engaged constructively with the board and management of BT and look forward to continuing that dialogue. We continue to hold them in high regard and remain fully supportive of their strategy, principally to play the pivotal role in delivering the expansion of access to a full fibre broadband network; an investment program which is so important to both BT and to the U.K.”

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 (£18.2bn) 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.

However, 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. More job losses are also a possibility in the future.

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). Any play for the UK telecoms giant will still be a complicated affair, as the bidder will also need the Government on their side – they’re currently minded to protect key players in the British technology sector.

Communications is a mandatory notification sector under the new National Security & Investment Act, which gives powers to intervene in acquisitions which raise national security concerns. The Act comes into force from 4th January 2022, but following commencement on this date, the Government will be able to consider acquisitions that have taken place since 12th November 2020.

None of this means that such a bid will suddenly arise, indeed if one is to surface then tentative early talks would probably occur first and a formal bid would then follow later in 2022. Speaking of which, a few months ago we noted that Deutsche Telekom (DT), which has long been linked with speculation of a takeover attempt and also holds a 12% stake in BT, added further fuel to the fire 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.”

UPDATE 15th Dec 2021

We’ve added the statement from Altice UK above, which has today reiterated that they don’t intend to launch a takeover attempt.