27th May 2022 18:02
(Alliance News) - The UK government's probe into BT Group PLC is likely to reignite fundamentals surrounding the former state monopoly's stock, according to UBS.
BT on Thursday said the UK government is exercising its call-in powers to examine the increase of Altice UK Sarl's shareholding in the telecommunications company.
Back in December, Patrick Drahi's Altice lifted its stake in BT to 18% from 12% previously. At the time, Altice confirmed it had no plans to mount a takeover offer and would be bound by that statement under UK takeover rules.
BT said on Thursday that it has received notification from the UK secretary of state for Business, Energy & Industrial Strategy saying that the government is exercising its power under the National Security & Investment Act 2021 to investigate the increase in the French company's stake.
The act was introduced in January and it allows government ministers to more closely scrutinise approaches by overseas interests. It also means the UK government will be able to impose certain conditions on a takeover or block it.
"BT will fully cooperate with this review", the company said.
The London-based firm is particularly sensitive, as its Openreach arm maintains most of the UK's broadband network.
UBS analyst Polo Tang said "it is not clear" why the UK government has decided to act now on BT, but notes the move follows news that the government was reviewing the acquisition of semiconductor plant Wafer Fab by Nexperia.
Tang highlighted BT shares have been firm in the run up to June 14 when the undertaking by Altice not to make an offer for the whole of BT expire and sees this move as likely to reignite focus on the fundamentals.
The UK government has 30 working days to come to a decision, with the option to extend for a further 45 working days. In terms of range of outcomes, Tang said it was unclear if the UK government will apply limits to Altice's holding in BT.
"In terms of range of outcomes, it is not clear if the UK government will apply limits to Altice's holding in BT. We have previously highlighted two barriers to M&A for the whole of BT Group, including the National Security & Investments Act as well as the BT Pension Scheme where the deficit could widen materially under a solvency basis that could be triggered by a change of control," Tang said.
"In terms of fundamentals, we see upside and downside risks. On the upside, BT will benefit from inflationary price rises at both Consumer and Openreach. However, risks on the downside include: wage inflation, with the unions pushing for a 10% increase FY23 guidance factors in a 4% increase; macro uncertainty impacting Enterprise/GS; and rising broadband infrastructure competition leading to wholesale market share loss that could eventually spill over into retail pricing," the analyst added.
The stock closed down 0.4% at 184.83 pence on Friday but is up 5.7% over the past year.
By Arvind Bhunjun; [email protected]
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