Will BT and Vodafone be next after Telecom Italia takeover bid?
KKR’s €33 billion offer for Telecom Italia has ignited speculation that the European telecoms sector is now firmly in the sights of private equity buyers, with shares in BT (BT.A) and Vodafone (VOD) in the spotlight.
Telecom Italia said the US buyout fund had offered €0.505 a share in cash, a rough 45% premium to the target company’s closing price on 19 November. That gives the company an equity value of €10.7 billion. It has roughly €22.5 billion of net debt. If successful, it would represent one of the largest private equity buyouts of a European company in history.
There is speculation that a buyout battle could emerge for Telecom Italia, with rival private equity investors such as CVC and Advent thought to be watching developments.
It also raises the prospect of private equity firms approaching other European telecoms operators, including BT and Vodafone. ‘If private equity is starting to sniff around this sector then it suggests there could be value to be found in other names; it underlines just how unloved a corner of the market it has become,’ says Neil Wilson of Markets.com.
Other experts agree. ‘The Italian deal may stir fresh bid speculation, especially as private equity is cash rich, interest rates are low, money is cheap and financial buyers are on the prowl for companies that can consistently generate cash,’ says Russ Mould, investment director at AJ Bell.
There has been a lot of speculation about a possible takeover of BT in recent months after Patrick Drahi, the French billionaire and founder of Altice, began building up a position earlier this year. Drahi currently owns a 12.1% stake in BT, which he bought this summer through the entrepreneur’s new vehicle Altice UK, making him BT’s largest shareholder ahead of Deutsche Telekom which owns 12.06%, a stake Drahi has said he would be interested in acquiring.
The telecoms tycoon has previously said that he holds the board and management team of BT in high regard and is supportive of its strategy, denying any immediate plans to launch full blown takeover of the UK group.
In June, he promised BT that Altice would not bid for the company for at least six months under UK takeover rules, an agreement which expires on 10 December. However, Altice could make a bid for BT before that date if it is agreed with the board, or if another company were to make an offer.
Analysts at investment bank Berenberg last week flagged BT’s UK fibre network attractions. They said: ‘(BT’s) Openreach currently enjoys a circa 80% market share in UK fixed telecoms infrastructure, this being about 60% in the half of the country where Virgin Media O2 exists and 100% elsewhere.’
DISCLAIMER: AJ Bell referenced in this article is the owner and publisher of Shares magazine. The author (Steven Frazer) and editor (Daniel Coatsworth) own shares in AJ Bell.