Fears of French broadband takeover as billionaire’s stake in BT triggers national security review
It’s a sign of growing alarm among Westminster over the threat posed by the takeover of the telecoms operator, which is essential to the country’s digital infrastructure and carries out classified work for the government.
Such a takeover would also come at a sensitive time as Britain upgrades its network to next-generation technology. BT is spearheading the rollout of faster full-fibre broadband and is among operators rolling out reputed 5G mobile signals that are 100 times faster than 4G.
Officials are bracing for Mr Drahi’s next move after the owner of auction house Sotheby’s shook up markets in June by becoming BT’s largest shareholder with a 12% stake. It then increased its position to 18% in December.
The latest raid kept him from bidding until mid-June unless an approach wins board support or he responds to a takeover from a rival suitor.
Mr Drahi, 58, has the power to increase his stake to almost 30% without being forced to mount a full-fledged bid, raising fears he may be pursuing a “creeping control” strategy.
Responding to the government’s decision on Thursday, BT said it would “cooperate fully” with Mr Kwarteng’s review. The company’s shares fell 6% to 179p after the announcement.
Altice declined to comment on the government’s decision. In December, Mr Drahi said he held BT’s board in high regard and supported its strategy.
The business secretary’s decision comes regardless of a charm offensive launched by the telecoms mogul last year when he met Mr Kwarteng; Ofcom Chief Executive Melanie Dawes; and BT’s board, to allay concerns about his intentions.
However, those meetings took place before Mr Drahi sparked fresh questions about his endgame when he increased his position to 18% at the end of last year.
Mr Drahi’s approach has been viewed with growing caution by the government because of his reputation for mounting debt-fueled deals and triggering sweeping cuts to generate returns.
BT’s board has recruited bankers from Robey Warshaw, the company that hired former Chancellor George Osborne last year, to help bolster its defenses against a potential takeover bid.
It would have organized scenario planning exercises in case Altice asks the telecommunications operator to offload its EE mobile arm, or the broadband infrastructure builder Openreach.
Speculation of a new raid comes amid calls among telecom executives for greater industry consolidation to ensure carriers can get a return on their investment in full fiber broadband and 5G.
BT chief executive Philip Jansen is among public supporters of mobile mergers, while Vodafone’s Nick Read is mulling a series of deals across Europe.
However, there are questions about whether Altice has the cash to sue BT as it struggles with debts amounting to around €29bn (£24bn).
Meanwhile, BT faces a growing threat of its first national walkout in 35 years after the Communications Workers Union staged a ballot to strike over wages.
The move comes after the union rejected BT’s offer of a £1,500 pay rise to frontline staff in April, saying it was a ‘killer pay cut in real terms “.
BT had announced that more than 40,000 frontline workers from BT, Openreach, Plusnet and EE would receive the biggest pay rise in more than 20 years.
Mr Drahi won shareholder backing in January to privatize the telecoms group in a deal valuing the company at 6.4 billion euros. Altice Europe offers telecommunications, media and advertising services, with operations spanning France, the Dominican Republic, Israel and Portugal.
Any attempt to tighten its grip on BT will depend on the company’s second largest shareholder, Deutsche Telekom, which has a 12% stake.
Chief executive Tim Hoettges has described Germany’s biggest telecoms group as a “kingmaker” in any potential deal.
He fueled further speculation in September saying “something is going to happen” over the next year at BT because “the shareholder side is changing rapidly”.
On Mr Kwarteng’s decision, James Barford of Enders Analysis said there could be an element of government signal that further Altice moves will be scrutinized very carefully.
“This decision makes it clear if it weren’t for it beforehand that a complete takeover – or total control – would be very difficult,” he added.
“It’s hard to think of a company that the laws around takeovers are more directed towards than BT. The company does things it can’t talk about for the government.
“It’s extremely important for the resilience of telecommunications networks. Not only is it the largest, but it does a lot of the underlying systems and connections. And it also offers security services through Global. It’s probably registers in three different ways for the government.
“The government has a range of different remedies that it can deploy if it is concerned. One of these remedies is to freeze shares or unwind a stock purchase. restrictions on information sharing. So if someone has an interest but doesn’t have full control, then you can use a lesser remedy.”
The decision to call off Mr. Drahi’s increased stake comes shortly after Mr. Kwarteng flexed his muscles under new takeover powers by ordering a security review of the Chinese-backed takeover of the Britain’s largest microchip factory.
On Wednesday, he snubbed the advice of two security investigations by demanding a closer look at the sale of Newport Wafer Fab to Nexperia, a sign that the deal could be stalled.
The move comes amid mounting pressure from Tory backbenchers, who feared such a move would jeopardize British interests.
Calling two prominent cases in quick succession has the potential to shine the spotlight on Mr Kwarteng, who has already been tipped to stand if a future Tory leadership race takes place.