Private equity firms and investment funds are ramping up BT’s OpenReach division as the telecom giant prepares itself for a potential shake-up triggered by its largest shareholder, Patrick Drahi.
Sources told The Mail on Sunday that potential suitors – which include private equity firms CVC and Apex, and infrastructure investors Brookfield and Macquarie – had conducted new analyzes on the value of OpenReach, which at an eye-watering £40bn cable. Division may cost. ,
Bankers are preparing for a possible bidding war over a possible stake or even the entire openreach due to pressure from Drahi.
The Connection: BT’s OpenReach Division May Be Shutting Down, and Bankers Preparing for Possible Bidding War
Franco-Israeli telecom tycoon Altice UK picked up a 12.1 percent stake in BT in June, valued at £2.2 billion.
The six-month period preventing it from starting an acquisition under city rules expires on December 11.
This has fueled speculation that Drahi could buy more shares and pressure the board to sell a stake or even the entire Openreach, which owns the infrastructure connecting most UK homes.
BT has hired boutique investment bank Robbie Warshaw, which employs former Chancellor of the Exchequer George Osborne, to bolster its corporate security.
The situation has prompted bankers and investors to closely examine BT and Openreach. Barclays and another large investment bank recently conducted research that values OpenReach at around £26 billion. That’s far higher than the £18 billion to £20 billion price tag attributed by analysts to the split this spring.
But a senior telecom source said: ‘The reality is that Openreach costs twice as much. There is little gold for telecom infrastructure assets in Europe. This is definitely an underestimate and, if you look at the profit forecasts, could easily be worth over £40 billion.’
Buyout giant KKR has separately launched a €33 billion (£28 billion) bid for Telecom Italia, with KKR’s rivals CVC and Advent also showing interest.
The source said: ‘The deal shows that top private equity firms think the big telcos are not big enough to stomach. All private equity houses and investment banks are running numbers on BT and Openreach.
The Pressure: Investor Patrick Drahi bought BT . took a major stake in
Sources said that the CVC and Apax may be part of a consortium instead of acting alone.
Macquarie, an Australian investment bank sometimes known as ‘Vampire Kangaroo’, has UK infrastructure assets including Southern Water and East Yorkshire fiber broadband firm Kecom. Canada’s Brookfield owns the specialist open fiber network through the UK Utilities branch.
BT, Altis, CVC Brookfield and Macquarie declined to comment. The apex could not be reached.
Druhi so far paints a cordial picture of the relationship with BT, which has been publicly supporting Chief Executive Philip Jensen’s strategy of bringing full-fibre broadband to 25 million homes by the end of 2026.
However, Altice has a scary reputation for cutting costs in Europe. The group is currently attempting to sell its Portuguese division, which could fund Drahi’s next move.
Druhi’s options include retaining or increasing its stake, attempting an outright acquisition of BT, or forcing a partial or complete sale of OpenReach, paying a hefty dividend to shareholders. A complete takeover is unlikely given the size of the group, pension fund liabilities and potential political constraints.
German giant Deutsche Telekom could be instrumental in supporting or opposing Drahi’s plans. It has repeatedly suggested it may review its 12 percent stake, and chief executive Tim Hoyts said this month he was keeping ‘all options open’.
Jensen is openly considering the possibility of selling a stake in OpenReach through a joint venture to help fund its full-fiber broadband rollout. But he shrugged off the idea earlier this month, opting instead to fund the rollout.
BT was privatized in 1984 under Margaret Thatcher’s government, but heavy debt and its large pension deficit have strained its shares. Amid the resumption of Drahi’s interest and dividend, the stock is up 13 percent so far this year at £1.54 per share, valuing BT at £15.3 billion.
The end of Drahi’s lock-up comes at a crucial point for BT.
Last week, it completed its move to its new headquarters in Aldgate, London, and former ITV boss Adam Crozier became chairman this week.
It is also looking to sell its BT Sport unit.
Matthew Howett, founder of consultancy Assembly Research, said: ‘This is an important moment in the history of BT – it is undergoing a transformation.’
But he added: ‘The spin-out is by no means a straightforward process – the government is taking a keen interest in network assets, and the pension scheme is a can of worms.’