For a while the chatter around BT has been that private equity bidders are lining up to have a pop.
When shares in the telecom giant hit 99p – too cheap even for Poundland – that chatter ramped up. For once the gossip is right, sort of.
We can safely assume that the p/e crowd, which BT boss Philip Jansen knows well from former lives, has indeed been running the numbers and imagining great riches.
But my bet (clunking hostage to fortune coming) is that in the end they won’t proceed.
BT certainly seems undervalued, if for no other reason that in a WFH environment what the company sells went from merely desirable to entirely vital.
The present market value of £10 billion, a snip, merely tells you how short term our markets have become. The Openreach arm alone is worth more than that, perhaps twice as much.
But it is a complicated company operating in a harsh regulatory world. Ofcom is working on its ‘Wholesale Fixed Telecoms Market Review’, which will basically decide how much profit BT is allowed to make on its investment in full fibre broadband. Until that uncertain outcome is known, it is difficult to say what the business is worth.
Second, BT has historic pension fund deficits of £9 billion. Any bidder would have to provide serious assurances to pension trustees that they can fund that deficit, something no p/e bidder would want to do.
So what we are left with is supposed short term investors, the private equity folk, looking on at a prime asset and wondering why the UK stock market isn’t giving it proper respect. While the supposed long-term investors mark down the shares over concerns about what might happen tomorrow.
This upside-down state of affairs doesn’t do the City much credit.