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Does the BT share price make the firm a takeover target?

The BT Tower at night
Image: BT Group

The BT (LSE: BT.A) share price jumped yesterday as investors speculated that the company is in the crosshairs of a potential acquirer. 

There has been speculation BT could be a takeover target since the French telecoms peer Altice, run by billionaire Patrick Drahi, acquired a 12.1% stake in the business back in June.

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Since then, there has been no further movement from either party. That was until yesterday when BT announced it had appointed advisory firm Robey Warshaw.

Takeover defences 

This firm has a strong track record of helping companies navigate takeovers. It was involved with Pfizer‘s aborted bid for AstraZeneca in 2014 and Sky’s takeover by Comcast in 2018. Based on this track record, I can see why investors are getting excited.

Altice has made a commitment not to initiate a takeover until 10 December. After that date, the group can make an offer if it sees fit. 

Unfortunately, I think the chances of a takeover are pretty low. There are a couple of reasons why BT may be a difficult pill to swallow. 

For a start, any acquirer would be lumped with the company’s huge pension scheme and its multi-billion pound deficit. On top of this, any move would surely attract government scrutiny considering BT’s role in operating the country’s telecommunications infrastructure.

The group has also made a significant pledge to expand fast fibre internet across the country. Regulators would likely want assurances that any potential acquirer would maintain this expensive commitment. 

All of these factors are enough to convince me that Altice won’t make a full offer for BT, at least not in the near term. 

BT share price opportunity 

BT is also in the middle of a major management shake-up. Its new chairman, Adam Crozier, is due to start at the beginning of December. This could delay any potential takeover. 

Having said all of the above, Altice could be attracted to BT’s low share price. Even though the stock has risen more than 40% from its 2020 low of around 100p, it is still down around 64% from its five-year high of 391p. The allure of a bargain could be too much to pass up for the French telecoms group. 

I have been involved with enough takeovers to know that buying a stock just because it is a target is never a sensible decision. Instead, I like to focus on company fundamentals.

With BT, I am encouraged by the company’s recent efforts to grow its operations and improve customer service. I also think the stock is trading at a discount valuation right now. Some investors might argue this valuation is justified considering BT’s sluggish growth rate. I can see the point, but the firm is investing for growth. This spending should pay off in the long run.

As such, while I do not think the company will succumb to a takeover offer, I would buy the stock for my portfolio today. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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