BT ‘talking to investors’ about selling stakes in Openreach

BT ‘talking to investors’ about selling stakes in £20bn Openreach

15 May 2020 | Alan Burkitt-Gray

Cover

Australian investor Macquarie and an unnamed sovereign wealth fund are talking to BT about taking an investment in Openreach, its last-mile fibre and copper company.

The money will be used to help Openreach fulfil the UK government’s goal to extend fibre-to-the-premises (FTTP) to all homes in the country – a task costed at £12 billion – according to the Financial Times, which reported the move last night. The relevant parties are not commenting on the report.

The Financial Times story, which is not sourced to any named individuals, said that Openreach is the most profitable division within BT and suggested the potential stake sale could value the unit at about £20 billion.

This is almost twice this morning’s market cap of the whole of BT, of £10.63 billion.

Telecoms analyst Paolo Pescatore told Capacity this morning: “I’ve repeatedly said that BT needs to evaluate the strategic options of certain businesses and assets including Openreach (and others) – more so during challenging times and an uncertain future.”

Investment banking group Jefferies International said this morning that BT’s pension commitments – which stand at £50 billion – might get in the way of such a sale.

If BT makes more than £1 billion in 12 months from disposals, one-third of the proceeds need to be paid into the pension scheme, noted Jefferies. There is a triennial review of the scheme at the end of June, said Jefferies in a note this morning.

The bank also said: “The FT asserts that BT’s interest in selling a stake in Openreach might be to fund the new FTTP commitment. We challenge that logic. Once the [pension] trustee has been satisfied in a way that de-risks the triennial review outcome, there may be limited proceeds left.”

Pescatore said: “Tough decisions need to be made to appease all stakeholders including shareholders and regulators. A move to partially offload Openreach will raise much needed cash for UK plc in the rollout of a gigabit society.”

The newspaper’s naming of Macquarie is an interesting feature of any possible deal. The Australian investor in March overtook Canadian-owned Brookfield with a last-minute dash to buy Cincinnati Bell for US$3.05 billion.

But, more relevantly to the UK, Macquarie also owns KCOM, an independent incumbent in the UK, running phone and data services in the east Yorkshire city of Hull and the surrounding area. It bought KCOM last year for £627 million – just after the company had completed a FTTP project giving all 200,000 homes in its area up to 1Gbps.

Just days ago Macquarie was reported to be considering splitting KCOM into two, selling off its non-core operations across the UK and focusing on the Hull network.

Meanwhile Openreach just days ago gave details of a long-term plan to move to an all-fibre future. “In more than 100 locations across the UK, covering around 1.2 million premises, we’re planning to stop selling our legacy analogue services and instead focus on providing people with a modern, futureproof full fibre connection that can deliver all manner of new digital services over the top,” the company said in a statement.

FTTP will be available to “more than 75% of homes” in selected exchange areas by the end of March 2021. The company said that next month it will give 12 months’ notice “that we’ll no longer be selling copper-based products in 118 exchange areas across the UK”.

Openreach added: “The decision builds on trials in Mildenhall and Salisbury (pictured) – launched last year – to develop and test the ways we upgrade customers onto new digital products, and we’ve responded to communication providers who asked for contiguous exchange areas and certainty on our build plan.”