Infrastructure is critical and that's why suitors want to bring BT back to life

Ever since I started writing about business, I’ve had to dwell upon overseas companies buying their UK counterparts. One by one, famous and not-so-famous, British brands have fallen. Sometimes there have been protests, but usually, in the end, price has prevailed. Recently, however, the clamour for the brakes to be applied by London has grown. Too late, where many businesses are concerned. Still, Boris Johnson’s government has woken up to what has been occurring and ever keen to pander to the crowd, has made this the busiest since 2002 for reviewing takeovers on the grounds of “national security”. While it smacks of closing the stable door after the horse has bolted, the Prime Minister and his colleagues appear determined to stand firm. It’s all very well, though, maintaining such a policy, but what do you get if the City is crying out for the company in question to be acquired and the leading candidates to buy it are all foreign? The answer if you’re not careful, is a zombie stock, marooned in some twilight world, stuck, its shares depressed, unable to move, not loved and incapable of being loved. This is the fate to befall BT. Shares in the telecoms group are now climbing on speculation that India’s richest man, Mukesh Ambani, wants to strike via his Reliance Industries combine. The theory goes, and the City loves to make these connections, that Ambani, frustrated at losing out on acquiring the Dutch end of T-Mobile, has turned his attention towards BT. At the same time, the Franco-Israeli billionaire, Patrick Drahi, has gone to the trouble of setting up a new company, Altice UK, to snaffle 12 per cent of BT, worth £2 billion ($2.66bn). Two of the wealthiest guys on the planet going head-to-head for BT – no wonder the City is salivating. They could square up to each other or team up or partner someone else, who knows? To whet appetites further, Deutsche Telekom is also sitting on 12 per cent. Certainly, investors are not that bothered what happens as they continue to push up the shares. No one can blame them – they need some excitement where BT is concerned. Its shares have halved in the last five years and the company is spending £1bn a year on kitting out British homes with fibre for fast broadband. The pace of that rollout has increased recently, further hitting cash reserves. The £15bn programme has still a fair way to go, in the meantime there is no clarity as to how much the company stands to make from such heavy spending. This is the problem: a legacy of the days when it was the national telephone network provider and belonged to the state, BT, via its Openreach subsidiary, is today busy raising the country’s technology, communications game. That’s highly commendable, and it’s spiffing, as Johnson might say, that a company has stepped up. The price, though, of this largesse is impasse. Johnson is depending on good old BT to deliver a key part of his “levelling up” mandate; as a result, he would like the company not to be going anywhere. Mr Drahi has himself acknowledged as much, saying he understands the provision of nationwide full fibre broadband is one of the UK government’s “most important policy objectives”. Drahi supports the company strategy of getting the job done. But someone like him does not spend billions for a passive, minority stake. He made his reputation from buying and selling other telecom companies that were also bogged down – Portugal’s Cabovisao and Israel’s Hot Telecom. Drahi bought his holding in June and assured the Takeover Panel then he was not going to bid – it’s not unnoticed in the City that assurance lasted six months and expires on December 11. What’s occurred in the interim as well is that big ticket deal making has continued apace. KKR’s E33bn bid last week for Telecom Italia has only served to feed the gossip surrounding BT. The British group is currently valued at £16bn. Within that, though, is Openreach, which some analysts are saying could be worth up to £40bn as a standalone. They see the cables division as commanding a far higher price than the parent. As well as Drahi, Deutsche Telekom and now Ambani on the share register, others said to be circling include private equity’s CVC and Apax, and infrastructure specialists Brookfield and Macquarie. Not for nothing has BT hired Robey Warshaw, the boutique investment bank that employs former Chancellor of the Exchequer George Osborne, to bolster its defences (of course, when news of this move broke, the chat around BT grew even louder). To add extra spice, BT has a new chairman, Adam Crozier, who begins this week. Crozier is not the sort to sit and do little. In his previous high-level jobs, at ITV and the Football Association, he oversaw major change. Sceptics say 'calm down', that on paper, splitting Openreach might seem an obvious move, but it would be fraught with difficulty. Section and group are completely entwined, determining who owns which wires at telephone exchanges across the land would be a mammoth task. Then there is the not inconsiderable matter of the BT group pension scheme, one of the biggest in the UK, which has a deficit of more than £7bn. BT though, has become in City eyes, a “yes, but”. They can see the problems but they are not insurmountable, there is a sense of something being willed to happen. What that will be, exactly, is not known. Three months ago, Tim Hottges, chief executive of Deutsche Telekom, told his investors on a call: “I think we will see an exciting quarter four with regard to this holding.” Conservative ministers may soon have an uncomfortable decision to make: to stick or twist. Keep BT, the former British Telecom after all, a British-focused company. Or not to intervene and allow the market to operate freely. No one said being prime minister was easy.