Investors would normally be forgiven for paying little attention to communications regulator Ofcom, but shareholders of BT Group (LSE: BT) should be ecstatic at today’s long-awaited release of the report on the future of Openreach, the subsidiary that controls the vast majority of physical broadband infrastructure in the UK. On the face of it, Ofcom forcing BT to make Openreach a legally separate company within the group with its own board of directors and budget control could be viewed as disastrous. But it’s a mere slap on the wrist compared to some of the more draconian options put forward.
The most extreme route would have been to spin out Openreach from BT altogether, something that many competitors and MPs had called for as a means of lowering broadband costs and expanding coverage across the country. The fact that Ofcom didn’t take this approach, at least for the time being, is critical to BT as Openreach provided a full 40% of group EBITDA last year.
Losing this cash cow completely would have been an immense blow for BT because it’s currently investing heavily in making itself a major player in the media industry. The company has spent billions of pounds on television rights for certain Premier League and Champions League matches as well as buying EE for £12.5bn.
Now that Ofcom has allowed BT to maintain a degree of control over Openreach, the company can continue to use these profits to fund its plan to compete with Sky for high-margin quad-play broadband, TV, mobile and landline packages. Whether this will work out for BT is a bigger question, but investors should breathe a sigh of relief for now that Ofcom didn’t throw a spanner in the works.
Extra cash
SABMiller (LSE: SAB) shareholders woke up to great news this morning as AB InBev upped its offer for the South African brewer to £79bn. While this increased offer only partly compensates for the plummeting value of the pound, no one will scoff at extra cash for a deal that was struck all the way back in November.
As the deal marches towards completion, having gained regulatory approval in the EU and US among other major markets, the biggest question facing investors will be whether to take the £45 cash per share option or the cash and stock alternative. It will be now be worth around £51 if SAB Miller’s board okays the latest offer.
Ab InBev has been a solid performer over the past decade as it gobbled up a slew of household names, cut operating costs and expanded exposure to emerging markets but it remains to be seen whether SAB Miller will offer as many synergies as expected or what price it will receive for regulator-mandated sales of certain operations. Either way, investors should be happy that they’ll have a few extra pounds in their pocket if the deal closes.
