BT shares set to see increased volatility amid M&A speculation

• BT Group shares to see increased volatility amid reported private equity interest
• Telecoms giant hires Goldman Sachs to handle bid defence strategy
• BT shares down 45% year-to-date

BT Group shares are likely to see increased volatility in the coming weeks amid speculation that it has received private equity bidding interest, according to a recent report by Sky News.

In response, BT have reportedly hired US-based investment bank Goldman Sachs to defend against takeover approaches from rivals and buyout firms who began to circle after it suspended its dividend, precipitating its stock to fall below 100p – hitting its lowest level in over a decade.

BT is trading at 107p per share at the time of publication, with the stock down 45% year-to-date.

Any takeover bid for BT will face UK government scrutiny

Due to BT’s critical role in national infrastructure and its future development any deal that materialises would require the UK government’s approval.

Any potential bidder must consider that BT has already committed to a £12 billion investment programme to roll out superfast fibre broadband to 20 million homes across the UK before 2030. The telecoms company is also crucial to the UK’s development of 5G networks.

As such, any potential acquirer of BT would likely see any deal have legally binding commitments tagged on to ensure that the telecoms company continues to play a critical role in the development of British infrastructure.

‘At a share price of 100p, BT has an implied EV of just £40bn (post IFRS16) on our estimates,’ analysts at Deutsche Bank said in reference to the BT takeover speculation.

‘Unlike the public market, the private markets tend to appreciate the longer-term benefits of guaranteed cash flows generated after the completion of FTTH rollout, especially in an environment with low interest rates,’ the German lender said.

‘If a deal materialised, BT would be run privately, allowing it to better focus...’

BT warns that Covid-19 hit full year profits

Due to the economic fallout from Covid-19, with government imposed lockdowns halting many sporting events and reducing activity among BT’s business customers, the telecoms giant said that it expects full year revenues and profits to be negatively impacted.

BT expects adjusted revenue to fall by 5% - 6% this financial year, with adjusted EBITDA of between £7.2 billion - £7.5 billion.

‘Despite our strong operational performance in the first three months of the year, it is clear that Covid-19 will continue to impact our business as the full economic consequences unfold,’ BT CEO Philip Jansen said in its Q1 results in July.

‘Beyond this year and based on current expectations, we expect to return the business to sustainable adjusted EBITDA growth, driven in part by the recovery from Covid-19,’ he added.

BT will unveil its half-year earnings on 29 October.

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