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    Reliance Industries weighs bid for UK telecom major BT

    Synopsis

    Ambani may make an unsolicited offer to buy into the company or partner its fibre arm Openreach. BT has market cap of $21 bn. If successful, this could become the largest outbound M&A by an Indian company.

    Reliance Industries
    This comes just two months after Reliance was outbid by a PE consortium of Apax Partners and Warburg Pincus who scalped T-Mobile’s Dutch unit for €5.1 billion
    Asia’s richest man Mukesh Ambani may have set his sights on the UK to expand Jio’s telecom footprint. Reliance Industries is weighing a bid for UK telecoms group, BT, formerly British Telecom, according to multiple people familiar with the matter.

    This comes just two months after Reliance was outbid by a PE consortium of Apax Partners and Warburg Pincus who scalped T-Mobile’s Dutch unit for €5.1 billion (Rs 43,329 crore as per current conversion rate). Nonetheless, the unexpected bid for the Dutch telecom unit signalled Ambani’s global telecom aspirations. Ambani also has been shuttling between Mumbai and London, after buying the iconic Stoke Park for £57 million.

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    With multiple shareholders in the mix — some 419 institutions own shares in the company — and with some strategic investors said to be open to cashing out if provided with the right offer, the sources cited above expect Reliance to make an unsolicited offer to buy into the company or even stake a claim to corner a controlling share.

    Alternatively, it may propose to partner networking or fibre optic arm Openreach and fund its expansion plans, even though the company had last month said it was shelving the earlier plans of roping in a financial or strategic joint venture partner to connect an additional 5 million homes. BT said it would fund the expansion and roll out itself.

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    The current market cap of BT Group, an FTSE 100 company, is $20.63 billion, as on November 26. If RIL were to take over BT, this will arguably be the largest outbound M&A involving any Indian corporate.

    However, the sources mentioned above cautioned that these are early-stage deliberations and may not eventually fructify into a transaction. It is unclear if Ambani has met with the BT brass — CEO Philip Jansen and outgoing chairman Jan du Plessis.

    BT is the UK’s incumbent operator for fixed line telecom services.

    It has, over the years, added fibre broadband, IP TV, television and sports broadcasting and mobile services among its offerings, that are now provided to over 170 countries worldwide. However, it has long been derided as retaining its government-like bureaucratic structures from the 1980s when it was privatised. The company has experienced boardroom upheavals. Its stock has fallen 53% in five years, touching an 11-year low in 2020-21.

    BT declined to comment on what it described as speculation. However, when specifically asked if BT was open to inducting a strategic or financial partner for its fibre arm Openreach, the company spokesperson told ET, “Openreach remains a core, long-term, strategic asset for BT and is performing very well. Whilst we are always open to value creating options for BT, we are currently focussed on building fibre-to-the-premises (FTTP) at pace, scale and at a low cost.”

    Mails sent to Reliance on Saturday did not receive any response till Sunday press time.

    Shifting Equations
    BT has been the subject of speculation ever since BT Group’s single-largest shareholder, the Franco-Israeli telecom’s tycoon Patrick Drahi, has been keen on increasing his stake to extend his influence at the British company, betting that its fibre-optic rollout will boost value.

    Drahi’s new investment vehicle Altice UK is BT’s largest shareholder with a 12.1% stake, having spent over $2.5 billion to accumulate a large pie, ahead of Deutsche Telekom, that operates the T-Mobile brand, which owns 12.06%.

    The coming weeks are expected to be crucial for Altice and Reliance. Drahi, 58, has so far backed BT’s plans to build a fibre-optic network serving 25 million homes by the end of 2026 but if he monetises his telecom infrastructure investments elsewhere in Europe (France and Portugal), many believe he will push ahead and pressurise BT to induct partners for the fibre business in a market where rivals Virgin Media, Liberty Global, City Fiber are making rapid inroads into both retail and wholesale segments. BT last month also announced it is beefing up takeover defences by adding extra protection for holders of its subordinated bond in the shape of change-of-control clauses.

    Moreover, Drahi’s six month “standstill” agreement lapses on December 11, when he can hike his stake or even bid for the whole company. UK takeover rules disallow anyone who pledges not to launch a takeover attempt from doing so for six months. Last June, Drahi publicly said he wasn’t looking at taking over BT. Many expect Reliance to step into the ring at that point.

    Even Deutsche Telekom’s CEO has repeatedly shown his interest in reviewing options for its stake, with Tim Hoettges going on record in September to say he wants to keep “all options open” regarding BT. Deutsche Telekom holds the BT stake in its pension fund. “I would say that in the next 12 months something is going to happen with the asset because the shareholder side is changing rapidly,” Hoettges said in response to a question from an analyst this September.

    “BT has always been a potential target for activism or a takeover with no government stake per Orange and Deutsche Telekom, and with no mechanism in place to defend the company such as with KPN. BT’s response today is to welcome investors supporting its strategy, but clearly this represents a new dynamic,” said David Wright, analyst with Bank of America. “So far Altice’s official commentary is supportive of strategy and management. A full takeover would surely face major obstacles with government involvement over security and fibre coverage etc. also with the pension deficit.”

    The business has improved after two years of turbulence (2017-19) and BT CEO Jansen has been advancing his vision for the company resulting in bolder and braver decisions, forecast revisions, a dividend cut and share price underperformance. Earlier this year, it advanced its target to achieve an additional £2 billion cost savings by the end of its fiscal 2024, a year ahead of plan. It also shaved its peak capital expenditure outlook in the financial year to 2023 by £200 million to £4.8 billion and achieved an initial £1 billion of savings 18 months ahead of schedule. UK media outlets reported Amazon, ITV, British sports streaming service DAZN Group have been in talks to buy into BT’s sports broadcasting business which airs English Premier League and Champions League Football.

    “Growth is turning positive, and BT benefits from tax breaks and lower spectrum costs to bridge investment calls on cash flow. Cost cutting accelerated as BT held on to Covid savings. There is sizeable potential for cost-cutting at BT, given the business has the lowest incumbent domestic margins and particularly with £6.2 billion labour cost (2x similar sized Orange France at €3.7 billion),” said Jakob Bluestone, an analyst with Credit Suisse, this November.



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