BT Builds Credit Takeover Defenses as Altice’s Drahi Circles

(Bloomberg) -- BT Group Plc is beefing up takeover defenses in the wake of a report that billionaire Patrick Drahi plans to increase his stake in the British telecommunications firm.

BT announced on Monday that it’s planning to add extra protection for holders of its subordinated bond in the shape of change-of-control clauses. The move sparked a rally in BT’s junior bond, sending it up more than 4 cents to 98 cents.

Those mechanisms work by promising bondholders that, in the event of an acquisition and the company being downgraded to junk as a result, they can still receive the face value of the bond or more. The clauses, along with related step-ups in interest payments, can help fend off takeovers by making a deal more expensive for any buyer.

BT has asked investors to agree to add a change-of-control clause and coupon step-up to its junior bond -- a 500 million-euro ($573 million) hybrid note issued last year. It also plans to include change-of-control terms in a new batch of dollar-denominated hybrids.

In an emailed statement, a BT spokesperson said the move is to “close the spread between the value at which its existing hybrid bond is trading for the benefit of our bondholders and make our proposed new bond more attractive for investors.”

Reuters reported on Friday that Drahi, founder of Altice and BT’s biggest shareholder, is looking to build his stake in BT, citing three sources familiar with the matter. A lock-up preventing Drahi from pursuing a takeover ends next month, after the French telecom billionaire swooped for a 12% stake in June.

Protection Clauses

BT also wants to add a “statement of intention” to buy back all unsubordinated debt that doesn’t have change-of-control provisions. The potential changes will align the bond’s protection clauses with those in the group’s existing and proposed new debt, the firm said. 

The bond price is now close to, but still below, the average price of about 98 cents this year. On Friday, investors in BT’s hybrid bond were nursing a total return loss of 3.3% for the year, against a 1.5% gain for the ICE BofA Euro Non-Financial Subordinated Index. After Monday’s rebound, BT hybrids are up 1% for the year.

The group’s shares rose as much as 2.1% in London on Monday, before paring gains.

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