BT/Altice: Drahi will struggle to separate from Openreach
Invasions of Great Britain by continental forces have had a low success rate over the past millennium. Patrick Drahi is unlikely to beat those odds if he is planning, despite opposition to the contrary, to take over BT. The same would apply to a breakup attempt.
Altice, vehicle of the French tycoon, has sprung up Its stake in the UK’s sluggish telecoms champion rose to 18 per cent. The government has responded with a swift sword of its own, saying it “will not hesitate” to defend BT using the new national security law.
Drahi appears to be carrying out an escalation control campaign, a tactic favored by continental tycoons. Altice bought just over 12% of BT in June, making it the largest shareholder ahead of Deutsche Telekom.
Drahi knows that much of the value of BT lies in Openreach. BT owns the broadband networking business, but is legally separate from it. Using an 8.5x business to value the ebitda, Bernstein values the unit at more than £27 billion, 70% more than BT and even higher than Altice.
But it will be very difficult for Drahi if forced to part. It would not be in line with the government’s “leveling” agenda. Openreach plans to connect 25 million homes with superfast fiber-optic broadband, covering more than 4 million homes each year. Many people live in remote, disadvantaged areas.
To separate Openreach from BT, Drahi also needs to convince the BT pension scheme trustees. This has a calculated deficit of around £8 billion to cover.
BT will have to get a premium price for the unit, or to maintain the contract in some other way in a computer. The rapid rollout of broadband is far from over. Even the most optimistic analyst concedes that further work must be done before a breakup can be pushed forward. Still not feeling all the competition from two heavyweights Virgin Media and CityFibre.
Under the takeover rules, Altice cannot buy more BT shares for another six months. That, combined with Drahi’s supply-side warnings, explains why BT stock is down 5% in morning trading.
Such short-term stock swings have nothing to do with the waiting game that Drahi is playing. But the schemes that made him a powerful businessman in France translate poorly into English. In England, the great tycoons lack the rights afforded them in France worth playing.
The Lex team is more interested in hearing from readers. Let us know what you think of Drahi’s intentions in the comments section below