BT Group, the former phone monopoly under pressure to return to growth, is considering options for its UK fixed network after getting informal interest from private equity and infrastructure investors, according to people familiar with the matter.
The British company is evaluating inbound proposals including minority and majority stake purchases in Openreach, the national phone and broadband grid it still controls, said the people, who asked not to be identified as the matter is private. The deliberations are early stage and the company may decide against pursuing any of the ideas, they said. BT shares rose the most in three months.
Openreach, BT’s most profitable business, could be valued at £12.4bn to £24.9bn, according to recent estimates from Berenberg and RBC Capital Markets, respectively. The wide range for Openreach reflects the vulnerability to regulatory decisions that affect prices it can charge customers.
Hurdles to any potential deal include BT’s preference to retain control of the grid, differences over valuation as well as risks related to regulation and Britain’s planned exit from the European Union, the people said.
Asset sales could help raise money for investments and preempt any moves from activist investors, with its shares languishing near the lowest in six years, said the people. BT is also looking at the possible sale of its mobile towers, two of the people said.
A spokesman for BT declined to comment. The stock advanced 2.4% to 208p at 8.05am in London. The intraday gain of 2.9% was the biggest since 23 February.
A sale of the grid would be a bold move for a telecoms carrier struggling to win back support from investors, after a strategy update this month flopped as BT predicted that profits won’t grow again until 2021. CEO Gavin Patterson is cutting thousands of jobs as he seeks to shrink costs, while also contending with rising competition in a mature market. The London-based company also has competing demands for its cash, as politicians and regulators demand investment in fibre broadband and the carrier faces large pension deficit payments.
Fibre build
Openreach is central to BT’s current strategy: responding to government, regulator and customer pressure, the division accelerated its fibre building commitments in February, upping capital expenditure in a pledge to connect 10m UK premises by 2025. And earlier this month it launched new products which meld the fixed network’s connectivity with wireless broadband from EE, the mobile carrier it bought in 2016. Patterson said BT is the only UK operator that can do this because none of its rivals also own both fixed and mobile assets of the same scale.
Companies across Europe are reviewing businesses and streamlining operations as activist investors turn their focus to the continent. US hedge fund Elliott Management has taken a stake in Telecom Italia and is pushing for changes including improved corporate governance and the sale of assets, including a part of the network, to cut debt.
Openreach brought in £2.5bn of earnings before interest, taxes, depreciation and amortisation last year, almost double the EE mobile unit. The regulated business generates regular returns that could be attractive to infrastructure, pension, sovereign wealth and buyout funds, the people said.
Private equity investors have been drawn to telecoms infrastructure in recent years, striking multibillion-dollar deals for mobile towers businesses that carriers have been willing to offload. In the UK, alternative network providers to Openreach have drawn interest, including the US$750m purchase of CityFibre Infrastructure Holdings in April by funds including Goldman Sachs Group’s West Street Global Infrastructure Partners and Antin Infrastructure Partners.
Any deal for Openreach could also be complicated, given its current arm’s-length relationship with BT. The company owns and controls the budget of Openreach, which sells wholesale broadband to communication providers including Sky, Vodafone Group and its own consumer business, but doesn’t have sway over day-to-day operations after regulators forced a legal separation of the network last year. That separation was seen by some analysts as a precursor to an eventual spinoff or sale. — Reported by Dinesh Nair, Ruth David, Thomas Seal and Manuel Baigorri, with assistance from Sarah Syed, (c) 2018 Bloomberg LP
