BT CEO Braces for Takeover Threats as Stock Hits 11-Year Low
BT CEO Braces for Takeover Threats as Stock Hits 11-Year Low
(Bloomberg) -- BT Group Plc’s executives are working with advisers to defend against potential takeovers and approaches from activists, according to people familiar with the matter who asked not to be named discussing confidential issues.
Chief Executive Officer Philip Jansen has been in the job for a year and a half, but problems ranging from deteriorating sales to a ban on key equipment supplier Huawei Technologies Co., have caused shares to fall to an 11-year low. Worth almost 50 billion pounds ($65 billion) in 2016, the company is now worth just 10.3 billion pounds.
Private equity firms, including CVC Capital Partners, have studied the feasibility of a takeover of Britain’s former national carrier, the people said. CVC, for example, has looked at the idea of teaming up on a bid with German telecom giant Deutsche Telekom AG, which is BT’s biggest shareholder, the people said.
Even though BT hasn’t received any formal approaches recently, the London-based carrier’s share slump has injected urgency into management focus on its strategy, they said.
Any move by private equity firms would face significant hurdles, including the huge pension plan and political resistance, and the deliberations haven’t yet moved beyond the theoretical stage, the people said.
U.K. officials could be concerned about a foreign takeover of BT on national security grounds, the people said. However, any intervention could depend on the state of Brexit negotiations, one of the people added. BT’s fightback could well include pleas to government officials to ease pressure on the company from regulation.
A BT spokesman said the company is going through a period of significant change and investment, and its focus is on long-term value creation. He declined to comment on takeovers or political matters.
Representatives for CVC and Deutsche Telekom declined to comment. A Department for Digital, Culture, Media and Sport spokesman declined to comment on takeover speculation, and said it monitors the industry and engages with BT regularly.
BT’s share woes are in part due to a swathe of issues: an Italian accounting scandal, Brexit, consolidating rivals, coronavirus and a ban on key equipment supplier Huawei Technologies Co.
They’re also subject to a trend that’s plagued many of Europe’s telecom companies: rising expenditure to roll out faster fiber networks and provide the next generation of mobile technology is meeting revenue constraints from price wars and regulation.
Though the company’s regional peers are raising cash for network rollouts by selling or spinning off infrastructure units -- often at lucrative valuations, sometimes at the behest of activist investors -- BT is not.
Openreach operates Britain’s national network and is responsible for about a third of the group’s profit. The support it provides to the 11 billion-pound pension deficit had always seemed to rule out any deal involving the division.
But BT’s share slide means Openreach’s valuation, put as high as 26 billion pounds by some analysts, now dwarfs the group’s total market capitalization. That gap, and potential entry point for a radical shake-up, may now be simply too big for outside investors to ignore. The unit has attracted interest from private equity and infrastructure investors before.
There’s little London-based BT could do to revive the stock “outside of a possible Openreach monetization, in our view,” JP Morgan analysts led by Christian Crosby said in a note. “With pressures from frustrated shareholders and credit agencies alike, we believe that it could be forced to at least consider a friendly approach.”
Income from such a move could help the company pay for the 12 billion-pound cost of building the nation’s fiber broadband network. Still, Jansen said earlier this year while there’s clearly value in Openreach, considering a split now would be a distraction.
Without a deal, there are levers the government could pull to ease BT’s difficult position. Prime Minister Boris Johnson has heaped pressure on the company with a ban on 5G components from China’s Huawei, as well as a target to roll out a full fiber network across the country by 2025.
An upcoming auction of 5G airwaves, normally a big money-raiser for governments, could be restructured to reduce the cost for carriers. Officials could reduce BT tax payments on property containing its fiber network equipment as part of their general review of business rates, something Jansen has said would provide broadband to a further 3 million homes.
Senior government officials recognize that the share slump means they may need to be open to a push from an outside investor for change at the carrier, according to a person familiar with government thinking.
Pension Review
The BT pension trustees are in the midst of their triennial review of the plan’s liabilities, and will decide in the first half of 2021 how much support BT Group will have to provide. The analysis could reveal a funding gap of 5 billion pounds to 11 billion pounds, according to Matthew Bloxham, analyst at Bloomberg Intelligence.
At about the same time regulators are due to publish the result of their review of the prices Openreach can charge. Once these are out of the way, the path may be clearer for outside investment.
“That could be a situation where you really could get an approach,” said Jerry Dellis, analyst at Jefferies International. “If government really wants to preserve this fiber rollout plan and its relationship with management, they might want to think about helping to put the share price in a better place between now and then.”
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