A consortium of private equity firms including Blackstone, Macquarie Bank and Kohlberg Kravis Roberts have emerged as the predators circling BT, the British telecoms giant.
Reports in the Sunday press quoted a source saying that the “gang of three” has spent the past two months examining a takeover of the telecoms group. Although BT’s stock market value is about £19bn, any bid could top as much as £25bn, the biggest ever private equity buyout of a British firm.
The source said: “The consortium has had people looking at credit financing and have come together because the sums involved would be just too large for any one of them. This is an infrastructure play not just a fixed-line play, but it is still too early to say whether it will come to anything.”
BT is an attractive target because it has a large steady cash flow, with valuable fixed assets that could also be broken up. But its operations are heavily regulated and the financial structure of a bid could prove challenging. BT also has a sizeable pension deficit at about £4.7bn.
Telecoms firms have become prime takeover targets in the past two years because they have become the key medium to distribute voice, data and now also television. They are highly cash generative through the services they provide as well as acting as a host for third parties who compete by renting the infrastructure.
BT dismissed the report, but it comes in the wake of rising private-equity activity in the European telecoms sector. Former Irish monopoly Eircom is being looked at by Australian investment company Babcock & Brown Capital, and there have been reports linking Cable & Wireless and Kingston Communications with private-equity groups.
The Reuters report quoted a BT spokesman as saying, "It's highly, highly speculative. We have not received a bid."
BT shares nevertheless raced 4.3 percent higher to 217 pence by 9:25 a.m., off an earlier high of 219p, and valuing Britain's dominant fixed-line telecoms group at about 18 billion pounds. The cost of insuring BT's debt against default also rose.
The Times report said other private-equity firms were also weighing up the company, and a bid would have to be in a consortium given its size.
Analysts expressed doubts a private-equity buyout of BT could proceed, although some said the former monopoly was a "fit to bill" candidate with its UK domicile which could make it easy to cut jobs, no government interest and a good management.
BT last month posted a smaller-than-expected decline in third-quarter core earnings and said underlying profit trends were good.
Analysts expressed doubts a private-equity buyout of BT could proceed, although some said the former monopoly was a "fit to bill" candidate with its UK domicile which could make it easy to cut jobs, no government interest and a good management.
BT last month posted a smaller-than-expected decline in third-quarter core earnings and said underlying profit trends were good.