Britain warns Drahi after he lifts BT stake to 18%

LONDON (Reuters) – Patrick Drahi said on Tuesday he had increased his stake in BT to 18%, triggering a blunt response from Britain, which warned it would intervene if necessary to protect the telecoms group building the country’s critical fibre network.

Drahi, BT’s biggest shareholder who has pursued debt-fuelled deals to buy assets in France, the United States, Portugal and Israel, said he did not intend to make a full bid for the 16.6 billion pound ($21.9 billion) company.

The Franco-Israeli entrepreneur, who bought 12.1% of BT in June, said he had engaged constructively with BT’s board and looked forward to continuing that dialogue.

A person familiar with the situation said Drahi notified BT’s new chairman Adam Crozier on Monday after the market had closed. BT boss Philip Jansen and Crozier met Digital Secretary Nadine Dorries earlier on Monday.

Shares in BT were down 7.5% at 162 pence in morning trade, following the UK response and the fact that Drahi cannot launch a hostile takeover for six months by virtue of his statement.

Britain said it was monitoring the situation closely.

“The government is committed to levelling up the country through digital infrastructure, and will not hesitate to act if required to protect our critical national telecoms infrastructure,” a spokesperson said.

The stock is down almost 70% since 2015 highs.

Drahi’s move gives him increasing sway at the 175-year-old former monopoly, without having paid a premium, and positions him to benefit if BT succeeds in its $20 billion bet that a national fibre build will deliver long-term rewards.

FILE PHOTO: Patrick Drahi, Franco-Israeli businessman and founder of cable and mobile telecoms company Altice Group attends the inauguration of the Altice Campus in Paris, France, October 9, 2018. REUTERS/Philippe Wojazer/File Photo

Reuters had reported last month that Drahi was looking to increase his stake.

Analysts have speculated Drahi could push BT to separate its networks arm Openreach to achieve a higher valuation shorn of the risks related to BT’s enterprise and consumer units.

A split has been a perennial question for BT, but the ties between BT Retail and the fibre rollout, a pension deficit of about 4.6 billion pounds and national security considerations have weighed against a move.

Britain will strengthen its ability to block takeovers on national security grounds next month.

FULLY SUPPORTIVE

Drahi announced in June he had bought a 12.1% stake in BT, worth 2.2 billion pounds ($2.9 billion) at the time.

He said on Tuesday that he fully supported BT’s strategy to build a full fibre broadband network; “an investment programme which is so important to both BT and to the UK”.

BT, in response to the statement from Drahi’s Altice UK, said it would run the company in the interest of all shareholders and remains focused on its strategy.

A person familiar with the situation said Drahi had not demanded a board seat.

BT’s second largest shareholder is Deutsche Telekom. The German company’s boss Tim Hoettges said in September it was weighing options for its 12% stake and expected some kind of movement in the next 12 months.

A second source said Altice had not bought shares from Deutsche.

BT recently bolstered its takeover defences by hiring boutique advisory group Robey Warshaw.

It also added change-of-control clauses to some of its bonds and stepped up its cost cutting.

Under British rules, because Drahi said in his statement that he didn’t want to launch a bid, he is now blocked from making a full takeover for six months. However that commitment can be set aside with the agreement of the BT board or if a third party emerges.

Drahi increased his stake, at a price of 1.02 billion pounds based on BT’s closing share price on Monday, after a previous six-months’ standstill expired at the end of last week.

(For a factbox on Drahi, click on:)

($1 = 0.7570 pounds)

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