BT Group board on alert for £15bn takeover approach

The board of BT Group is preparing to defend it against takeover approaches from industry rivals and buyout firms after the suspension of its dividend prompted its shares to slump to their lowest level in more than a decade.

Sky News has learnt that Britain’s biggest telecoms group, which now has a market capitalisation of just £10.1bn, has asked bankers at Goldman Sachs to update its bid defence strategy in recent weeks.

Robey Warshaw, a boutique headed by two of the City’s leading investment bankers and a long-standing adviser to Vodafone, may also be asked by BT to play a role, according to insiders.

Sources said this weekend that BT had not yet received a formal approach from any potential suitor.

Any such overtures would, if they materialised, be regarded as politically explosive, with BT having committed to funding a £12bn investment programme to roll out superfast fibre broadband to 20 million premises across Britain by the end of the decade.

It also occupies a critical role in constructing the 5G network in which Huawei Technologies, the Chinese telecoms equipment manufacturer, was last month banned from involvement.

The government does not own a golden share in BT, although the possibility of a takeover occurring on anything other than a friendly basis is remote.

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Ministers have promised to introduce a bill in the autumn that will shape the UK’s approach to national security and foreign investment, and BT’s role in defence and critical national infrastructure networks means a deal would require government approval.

Any buyer of the company would also be forced to make legally binding commitments about investment, jobs and future ownership.

BT’s stock has fallen so far that its equity is now capitalised at just half what many analysts believe its Openreach broadband infrastructure arm alone is worth.

On a discounted cashflow basis – a key measure which assesses the value of a company’s future cashflows – many bankers believe BT is worth at least 200p a share.

Its shares have suffered in recent years amid troubles at its Global Services division and rising forecasts of the scale of investment required to roll out full-fibre broadband and modernise the company.

Last month, BT warned that the pandemic would trigger sharp falls in revenues and profits for the full year, with the dearth of sport during the lockdown and reduced activity from business customers impairing its performance.

Philip Jansen, the chief executive, promised in April not to make any BT employees redundant for reasons related to the COVID-19 crisis for at least three months.

He also donated his own salary to charity for six months and, along with finance chief Simon Lowth, waived his entitlement to cash bonuses for two years.

BT’s decision to suspend its dividend for the first time since its privatisation more than 30 years ago made it one of scores of blue-chip corporate names – including BP and Rolls-Royce Holdings – to cut or halt shareholder payouts amid the uncertainty caused by the pandemic.

Some shareholders now believe, however, that BT’s traditional “poison pills” – its mammoth pension deficit and regulatory costs associated with various aspects of Ofcom’s oversight – are now outweighed by the scale of the decline in the company’s value.

Sources said this weekend that a number of large private equity firms had begun exploring the possibility of a joint bid for the whole of BT Group.

Mr Jansen made handsome returns for the buyout funds Advent International and Bain Capital – as well as himself – during his successful stint as chief executive of the payments processor Worldpay, although it was unclear whether they were among the firms looking at BT.

Factoring in a conventional takeover premium of between 30% and 50% could make any offer for BT’s shares worth more than £13bn, along with net debt of more than £11bn.

Some believe that taking BT private would enable Mr Jansen to implement a modernisation plan more swiftly than is possible in the public markets.

Its other immediate options for halting the slide in its share price appear limited.

In May, the company denied a Financial Times report that it was in talks with the Australian bank Macquarie about the sale of a stake in Openreach.

Most analysts regard the division, which is a legally separate company that is wholly owned by BT, as being worth between £14bn and £20bn on a standalone basis.

The Sunday Telegraph reported recently that BT may hand a stake in Openreach to its pension scheme as it grapples with a deficit estimated to be just shy of £10bn.

A separate transaction to offload a stake in the division to crystallise value is plausible in the medium term, analysts and shareholders believe.

The other logical bidder for BT would be Deutsche Telekom, which already holds a 12% stake in BT following the sale of the EE mobile network to the British company in 2015.

Shares in BT are now worth less than a quarter of the 441p they traded at on the day the EE deal was agreed, and are down by 37% over the last year.

The German group has previously sought to play down speculation that it would seek to buy BT, and on an earnings call earlier this month, its executives were non-committal about the prospects for further consolidation in Europe’s telecoms industry.

This year’s biggest domestic deal to date in the sector was the £31bn merger of Virgin Media, owned by Liberty Global, and O2, the mobile network owned by Telefonica.

BT, which competes with Sky News’ immediate parent company in the provision of telecoms, broadband, mobile and pay-television services, was privatised in 1984.

Board members are understood to be frustrated that the stock market has failed to recognise the scale of the investment required to modernise BT, leaving it vulnerable to a takeover approach.

The company’s chairman, Jan du Plessis, is an experienced hand in dealing with bids, having chaired SABMiller, the brewer that was sold to AB InBev in 2016 for £79bn, and Rio Tinto, which was briefly targeted by rival miner Glencore.

City bankers believe the coronavirus crisis has exposed the financial frailty of many of Britain’s most important companies, and anticipate a string of bids for them during the months ahead.

A BT spokesman declined to comment on Saturday.

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