A plunge in BT Group’s share price this year has catapulted the UK telecoms company on to the radar of US private equity group KKR, according to people familiar with the matter.
KKR’s dealmakers are monitoring Britain’s former phone monopoly, whose shares have almost halved in 2020, and could ultimately decide to make a move, one of the people said.
The US private equity firm, which has been the industry’s most acquisitive since the pandemic erupted, has not drawn up any concrete plans or invested resources in detailed work on the company, the person added. No approach to BT has been made and the firm’s interest may not lead to a bid.
However, it comes as senior figures from several large rival private equity firms told the Financial Times they had decided not to consider a move for BT, one of the UK’s best-known companies, because of its large pension deficit and the potential size of a deal. Any bid for BT would likely require a consortium, according to multiple industry advisers.
Even if no bid were to emerge, the fact that BT is being contemplated as a takeover target highlights the difficulties facing the UK group as well as the increasing ability of PE firms to take aim at bigger targets.
In May, BT cancelled its dividend for the first time since it floated in 1984 amid a wave of privatisations under Margaret Thatcher’s government, to help pay for upgrading its fibre optic network. Last month, the company warned the pandemic would lead to a sharp drop in revenue and earnings this year.
BT holds several attractions for potential buyers. One possible option for an acquirer would be to try to carve out and sell BT’s Openreach division, which analysts value at more than £20bn, more than double BT’s current market value. Openreach maintains the UK’s national broadband network and is BT’s most profitable division. The reliable cash flows of fibre optic networks are also appealing.
KKR is an active investor in European telecoms and already owns a majority stake in Hyperoptic, a small challenger to BT, in the UK. It is also set to buy a stake in Telecom Italia’s separated network arm FiberCorp in a signal it is keen on larger telecoms assets.
BT’s £10.7bn market capitalisation puts it within the reach of some larger buyout groups, though analysts have previously said any offer would probably need to be worth more than £15bn based on other deals in the telecoms sector.
BT’s shares have fallen 47 per cent since the beginning of 2020 to £1.05.
KKR and BT declined to comment.
However, there would several substantial obstacles to any deal. BT, which also has £18bn of debt, has the UK’s largest company pension scheme, with more than £50bn of liabilities. It has kicked off a new valuation of its pension scheme that will not be complete until next year, with analysts predicting a deficit of between £8bn and £9bn. Any sale of the company or any of its assets would also require consultation with the company’s pension trustees.
The government could veto any potential deal to take BT private given the company controls the largest broadband network in the country, deemed to be critical national infrastructure, as well as the EE mobile phone network. BT, via Openreach, is also finalising its strategy to invest £12bn in upgrading its fibre optic network to cover 20m homes.
Delivering gigabit speed broadband to the entire country is a key policy of the Boris Johnson government although any potential buyer could pledge to bankroll the fibre upgrade outside the glare of the public markets.
European telecoms companies, which trade at depressed valuations compared with US peers, have long been seen as potential targets for infrastructure funds and private equity although deals have tended to be limited to assets like masts or smaller players looking for investment.
KKR is one of a handful of mostly US-based private equity groups that have struck a large number of deals during the pandemic. Its co-president and co-chief operating officer Joe Bae said in June that it was intentionally “capitalising on the unprecedented level of volatility and dislocation” to strike deals at “attractive prices.”