Increased Altice BT shareholding fuels UK government jitters

The news that Altice UK boss Patrick Drahi has upped his stake in UK national telecoms provider BT to 18% has prompted mass talk of a takeover across the telecoms industry, drawing the UK government to fire a shot across the bows of the billionaire, warning of possible regulatory intervention if any act goes against what is perceived as the national interest.

The comments followed the announcement by BT Group that Altice UK had increased its interest in BT Group’s voting share capital to 18% from the 12.1% share that it acquired in June 2021 for a sum reported to be in the region of £2.2bn. Part of this deal included a no-bid clause under UK takeover rules that ran until 10 December.

Since this time, the telecoms industry has been waiting for Drahi’s next move regarding BT, which in November 2021 released a mixed set of half-yearly results, showing revenue decline in its key business lines but with acceleration in the adoption of gigabit fibre broadband.

For the half-year ended 30 September, it reported total revenues of £10.3bn, down 3% on an annual basis, driven by falls in its Enterprise and Global lines and flat performance in Consumer, but partially offset by growth in its Openreach broadband provision business. Yet analysts and investors have given support to BT’s forward strategy of focusing on core networking activities, mainly 5G and fibre broadband.

Directly after increasing the shareholding, Altice UK issued a statement assuring that it did not intend to make an Offer for BT and that it would be bound by that statement for the purposes of Rule 2.8 of the UK’s Takeover Code.

“We are pleased to take this opportunity to increase our shareholding in BT,” said Drahi. “Over recent months, we have engaged constructively with the board and management of BT and look forward to continuing that dialogue. We continue to hold them in high regard and remain fully supportive of their strategy, principally to play the pivotal role in delivering the expansion of access to a full-fibre broadband network; an investment programme which is so important to both BT and to the UK.”

Reacting to the news, the BT board said that it would continue to operate the business in the interest of all shareholders and that it remained focussed on the successful execution of its strategy and building on recent performance momentum.

However, such statements did nothing to dampen the takeover rumours. As the shareholding was confirmed, the UK government’s Department of Media culture and Sport (DCMS) noted that communications was a mandatory notification sector under the National Security & Investment Act, which gives powers to intervene in acquisitions which raise national security concerns. Pointedly, the DCMS stressed that while the Act comes into force from 4th January 2022, but following commencement on this date, the government will be able to consider acquisitions that have taken place since 12 November 2020.

“The government notes the latest acquisition of BT shares by Altice. We are monitoring the situation carefully,” a spokesperson said. “The government is committed to levelling up the country through digital infrastructure, and will not hesitate to act if required to protect our critical national telecoms infrastructure.”

Adding his opinion to the takeover frenzy, contrary to the denials by Altice and BT, Kester Mann, director of consumer and connectivity at CCS Insight, speculated that the move by would serve to accelerate expectations that Drahi would eventually seek to take full control of BT, and a logical next step could be to look to acquire Deutsche Telekom’s 12% stake in the operator, something the German telco has already indicated may be open to offer.

“The sale of a British institution such as BT would be politically sensitive, particularly with the government under mounting pressure over its handling of the Covid-19 pandemic,” said Mann.

“Mr Drahi’s ambitions could face resistance from the National Security & Investment Act, due to come into force in January. This would allow the government to block takeovers of UK companies that are deemed important to national security. For BT, the ownership uncertainty is an unwelcome distraction as it seeks to turn around its financial performance after a challenging few years. It also comes as it seeks to find a partner or buyer for BT Sport and accelerates its full-fibre roll-out commitments.”