BT shares were on the up again today after the embattled business emerged as a target for private equity buyers.
Investors piled into the telecoms group on Monday after weekend reports that its flagging value had left it vulnerable to potential takeovers. After closing 7.1 per cent up yesterday, the shares continued their rally with a rise of 2.25p or 2 per cent to 111.25p as traders sensed an opportunity.
BT’s value has fallen steadily in recent years and now sits at just £10.7billion – the lowest level in a decade – after a cut to its prized dividend sent shares sinking even further.
Analysts at investment bank Jefferies said that BT looked like a bargain because of the ‘stark disconnect’ between the value of its assets and its market capitalisation.
In safe hands?: Chairman Jan du Plessis, left, and chief executive Philip Jansen
WILL THESE MEN REALLY DEFEND TITAN?
BT’s two top bosses oversaw multi-billion pound sales of their last businesses.
Chairman Jan du Plessis was previously chairman of South Africa-rooted brewing and beverage giant SABMiller, which was sold to rival AB Inbev, while chief executive Philip Jansen was boss of payments giant Worldpay before it was sold to competitor Vantiv.
The pair have vowed to turn BT around and return it to its roots as a ‘national champion’ of infrastructure. But they may now have to fight off takeover bids for the telecoms giant after its market value crashed to just over £10billion – down from £49billion in 2016.
Du Plessis – BT chairman since 2017 – is a chartered accountant who was chairman of SABMiller when it was bought by AB Inbev for £79billion in 2016 – one of the largest takeovers in history.
The 66-year-old later confessed he found it hard to sell the company, which was from his home country and boasted a century-long history. Jansen, 53, is the multimillionaire former boss of Worldpay, who took over from Gavin Patterson in February 2019.
The father-of-five led the payment processing firm, owned at the time by private equity, through its 2015 listing and sale to US-based Vantiv in 2017 for £9billion.
He made about £30m from that deal and defended the large sum, insisting the money ‘is not important to me’ because he had already made a fortune from floating the company on the London Stock Exchange in 2015.
Openreach, the division of BT which owns and manages its broadband network, is thought to be worth around £20bn alone – double the value of its parent on the stock market.
Jefferies analysts told clients: ‘It is likely that private equity firms are looking closely at BT.’
Potential buyers are thought to include top BT shareholder Deutsche Telekom, while Saudi Arabia’s sovereign wealth fund has been building a stake in BT this year and Australian investment bank Macquarie reportedly once held talks about buying a stake in Openreach.
Helal Miah, an analyst at The Share Centre, said: ‘Any potential bidder may be attracted by the fact that individual businesses such as Openreach are valued far higher than the sum of the parts, with potential bidders coming from the private equity industry.
‘The view among some is that if BT is to become a private company, it may be easier to restructure and unlock value than as listed business.’
However, analysts also cautioned that BT’s status as a former state-owned monopoly would make it a difficult target. It was privatised under Margaret Thatcher in 1984 but its telephone and broadband network is still seen as critical national infrastructure, meaning any potential takeover will face scrutiny.
And although the Government does not hold a so-called ‘golden share’ that would allow it to veto such a proposal, the company’s investment plans are based on deals reached with ministers and regulators which are predicated on BT’s market position and ownership structure.
The company’s huge pension scheme deficit could also be an obstacle, with buyers likely to face demands to show how they would plug the hole.
However, fears that BT could be stalked by rivals or buyout firms have still spooked its board, led by chairman Jan du Plessis.
The firm is so worried that it has drafted in investment bank Goldman Sachs to draw up an up-to-date defence strategy, in case it is approached. The company’s shares crashed to lows not seen since 2009 this month. They have fallen lower since bosses said in May that they were axing the dividend for the first time since privatisation.
Philip Jansen, chief executive, said the ‘exceptionally difficult’ decision was necessary so that the firm could continue funding a major upgrade of broadband network while also taking a financial hit from the coronavirus pandemic.
Shareholders will not receive any more payouts until 2022.
BT is rolling out cutting-edge fibre broadband across the UK, a vast effort that will cost about £12billion along with its investment in 5G mobile infrastructure.
But Jansen is betting that the huge spending will lead to bigger profits in future.