BT stock jumped on Monday after the British telecoms giant went on high alert against a potential takeover as decade-low share prices left it vulnerable to a bid.
The UK’s largest telecom group has tasked Goldman Sachs bankers with updating the company’s takeover defence strategy, Sky News reported. Shares in BT were up 5.7% in late London trading.
The stock has plunged more than 75% since a decade high in 2015. The embattled company continues to be weighed down by its pension, the largest in the U. with 280,000 members, which takes around £800m in cash out of the company each year.
BT cut its dividend in May for the third time in its history, suspending it until 2022. The move to free up cash came as the company faces rising costs to roll out 5G and deliver on its plan to bring fibre-to-the-premises (FTTP) internet to 20 million households by the end of the 2020s.
The telecoms giant took a further hit in July when the British government announced that Huawei equipment must be removed from all 5G networks by 2027, which BT said would cost it up to £500m.
BT may also ask boutique investment bank Robey Warshaw to play a role in a possible takeover bid by a telecom rival or private equity group, according to reports.
Analysts speculated that Deutsche Telekom was a likely candidate to make a bid. The German telecom group has owned 12% of BT since 2016 when it and Orange sold the mobile business EE to BT.
Any sale of BT would come with intense government scrutiny. A post-Brexit regulatory environment will be more protective of domestic companies, and BT’s role in critical infrastructure means that government approval would be required for a sale.
But the company’s current vulnerability to a bid, and the intense attention this has drawn, hammers home just how undervalued BT’s share price is. The valuation of its infrastructure arm Openreach alone could be as much as £20bn, according to some analysts — almost double BT’s current market cap. That being said, BT faces larger questions about its long-term health, and a reverse in the shares’ fortunes could be a long time coming.
One strategy that could be pursued by a private equity buyer, or even BT itself, is to break up the company and separate it from Openreach, which has been the subject of government concerns. Such a breakup would realise more of the company’s value and could be a big step in turning around the share price performance.
Source: Barron’s
