BT is reportedly reviewing its strategy to deal with a hostile takeover following reports that potential suitors are eyeing up a bid following the decline of the firm’s share price.
The UK’s largest mobile and broadband operator is grappling with major investment and restructure programme, the effects of which have been exacerbated by the coronavirus pandemic.
Investors have not been as enthusiastic as hoped given the cost of the programme, the decision to pause dividends for the first time in company history, and the issue of a profit warning.
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BT sale talk
Despite the belief that the changes will result in significant cost savings and open new revenue opportunities, BT’s market capitalisation has fallen to £10.1 billion. Meanwhile, in its most recent quarter, BT reported a seven percent drop in revenues to £5.25 billion and a 13 per cent fall in net profit.
Some believe that private ownership would make it easier to implement the modernisation strategy, away from the scrutiny of the markets.
Sky News says private equity firms believe a deal can be done for £15 billion and are investigating a joint-bid. Deutsche Telekom has also been touted as a potential suitor due to the 12% stake it acquired in BT through the sale of EE in 2016.
No declaration of interest has been made, but it is said that BT’s board of directors is seeking advice from its advisors at Goldman Sachs and could get additional support in case it needs to fend off any unwanted approach.
Regardless, any takeover would be politically challenging given the importance of communications networks to industrial strategy and national security. The government could seek to block the deal or impose legally binding commitments to continue BT’s planned network rollout.
Under its current plans, BT will connect 20 million premises to fibre by the end of the decade, cut thousands of management roles and sell its St Pauls headquarters. Instead, there will be fewer leadership roles with greater responsibilities and more jobs will be created in engineering and customer service.
It is hoped that the changes will save £1.3 billion and allow the more streamlined, decentralised company to react more rapidly to market trends and get closer to customers. Full fibre and 5G network convergence will also allow BT to offer new products and services.
One solution could be the sale of a stake in Openreach. BT has fought hard with regulators to retain ownership of its infrastructure division, but with the firm valued as high as £20 billion, a sale could unlock the value of the Openreach division for investors, provide a boon to BT shares, and help fund investment in infrastructure that would generate long-term gains.
BT has been approached for comment.
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Via Sky News
