It now looks almost certain that the Royal Mail will be sold off to the Czech billionaire Daniel Kretínský. But what will happen to what was once, a long time ago, the other half of the old Post Office – BT?
Last week, the telecoms giant delivered its most upbeat results for years. The new CEO, Allison Kirkby, who took over from Philip Jansen in February, may have had to own up to a fall in profits over the year, but revenues are rising, and she was able to push the dividend up substantially while also promising significant cost cuts. The stock market liked what it heard, with the shares rising by 13% on the day the figures were revealed.
Until last week, BT was one of the most shorted stocks in the FTSE 100. More importantly, takeover rumours have been swirling around the conglomerate ever since French entrepreneur Patrick Drahi took a stake of almost 25%, close to the level where he would be forced to make a full-scale bid.
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With a market value of only £13bn, BT looked increasingly likely to be taken over, either by Drahi or by one of the private-equity firms. With a far better set of results, Kirkby is leading a fightback. There is still a mountain to climb, however.
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The shares are still down by three-quarters over the last decade. BT has paid a high price for its disastrous diversification into sports broadcasting under the hapless leadership of Gavin Patterson: the attempt to take on Sky in live football was always an odd move for what was basically a phone company, and ended accuring losses of £2bn. And BT has had to pay for rolling out a full-fibre broadband network.
An ageing phone network was no longer able to carry the vast amounts of data that we all now require to be served up at home, but replacing it with fibre wire, especially in a country as densely populated as the UK, has proved hugely expensive, with the full cost estimated at around £15bn.
Kirkby has some luck on her side. She has taken over at a time when the company’s fortunes are about to improve. It is now largely out of the sports broadcasting business, and although the upgrade to the broadband network has been expensive, most of the work has now been done.
A recent report by the broker Berenberg estimated that annual spending on the roll-out will come down by as much as £1bn a year over the next couple of years. With those two costs massively reduced, it will be possible to improve returns to shareholders. For the first time in a decade, BT’s shares may well be an opportunity to make money again.
What does the future hold for BT shareholders?
The problem, though, is that Drahi still has a huge and threatening stake. That means the company remains effectively in play. He could still make an offer for the whole company, or else a rival bidder could easily purchase the stake wholesale and put themselves in poll position.
There is one clear lesson that can be learned from the history of major bids on the UK market. A firm is at its most vulnerable not when its share price is at rock bottom, but when it has turned the corner and it is starting to recover.
No one wants to buy into a company when it is in a state of chaos, its costs are soaring and the market is in free fall. It is too risky and it is too much work to solve all the problems. The time to buy is when it has started to improve, but the price is still fairly low. The moment to launch a takeover will be over the next few months.
At £13bn, the company is a bargain for a foreign predator. There are only two ways to stop that. Either fund managers and small investors get behind the company and drive the shares back up again so that it is not a bargain anymore, or else the government blocks a takeover, possibly even signalling in advance that a full-blown bid would not be allowed to proceed.
BT is a valuable national asset and one that should not be sold to a foreign bidder. There may be some fireworks for shareholders over the next few months – and some decent returns as well. But time is running out to save BT.
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