French billionaire Patrick Drahi substantially raised his holding in BT Group (LSE: BT-A) back in December 2021. His multinational telecoms company, Altice, is BT’s biggest shareholder, and new purchasing took its stake in BT shares up to 18%.
At the time, Drahi’s actions came to the attention of Business Minister Kwasi Kwarteng.
Altice’s accumulation of BT shares already had to be paused under takeover rules. And the minister was widely expected to block any further purchases. In fact, with the new National Security and Investment Act in place, many expected Drahi might even be forced to cut his stake.
No action
But that’s all changed. This week, the UK government said it saw no national security issue. And it will not take any action over Drahi’s stake-building in BT shares.
This doesn’t necessarily clear the ground for a full-on takeover attempt, though. The government’s statement also said: “Under the National Security and Investment Act, acquisitions are assessed on a case by case basis, so any future transaction could be subject to a separate assessment under the Act.“
Speculation
Press and investor speculation has already resumed.
The BT share price initially picked up a bit on the news, but it fell back. And things have cooled off further, perhaps as investors realise that any further purchases could still be blocked.
All this raises two questions in my mind. One is whether a takeover might be good for BT. On that score, I’d certainly like to see some kind of shareholder activism. I reckon it could be exactly what BT needs to shake up what I see as long-term complacence.
Debt
My biggest complaint about BT is the huge debt it’s carrying. And that the board doesn’t seem to show much interest in reducing it.
I thought I saw some optimism when the company suspended its dividend in response to Covid. Maybe, I mused, this might focus the board on the long-term value of a healthy balance sheet.
But that hope was dashed. The first thing BT appeared to be interested in when pandemic fears started to recede was ramping its dividend back up as quickly as possible.
Saying that, I’m not sure Patrick Drahi would bring the kind of activism I’d like to see. Not given that his previous acquisitions have been heavily funded by debt.
Buy for takeover?
This brings me to my second question. Is it worth buying BT shares now in the hope of a future takeover attempt? My answer, as it always would be, is no.
I would buy BT shares for only one reason, as I would with any stock. That would be if I saw them as undervalued right now. Undervaluation can play out in a number of ways. Share prices can rise. Dividends can generate healthy profits. And yes, a takeover could push up the valuation.
But that would only ever be a side effect of undervaluation for me. I would never buy primarily in the hope of it happening.
If I ever buy BT shares, it will be because I think they’re good value to hold for at least 10 years.
