For those stalking BT Group PLC (LSE:BT.A), open season is underway. The shackles are off for shareholder, billionaire Patrick Drahi and his company Altice, which owns 12.1% of the telco.
So, with Drahi, and possibly private equity circling, why is the BT share price down almost 2%?
Well, the weekend papers, used as a sounding board for those in government and business, brought some bad news.
The press, it seems, has picked up on potential Westminster intervention if any takeout deal is deemed to be against the UK national interest.
Whether these whispers are emanating from the Whitehall, or the Tower Hamlets (home to BT’s brand spanking new HQ), remains to be seen.
Perhaps it was just a case of the financial press putting two and two together – and coming up with an answer broadly approximating to four.
The Sunday Times says digital, culture and media secretary, Nadine Dorries, may stick her oar in. Under the Enterprise Act 2002, she oversees the telecoms sector and national securities issues therein.
In January, however, the National Security & Investment Bill will pass into law. This gives business secretary, Kwasi Kwarteng, the scope to intervene.
The ‘national interest’ at stake is, of course, who controls the UK’s telecoms network, including the fibre infrastructure being rolled out at great cost to BT.
It already looks like the prospect of foreign ownership of BT’s infrastructure arm Openreach has set the claxons blaring.
So, the cooling of the share price on Monday almost certainly reflects the reality of a situation that is fraught with political risk for BT’s putative new owners.
Drahi may acquire passive investor Deutsche Telekom’s 12% stake in BT, and he may push to accelerate the broadband roll-out, that, under a new, more benign regulatory settlement could eventually, after £15bn of investment, turn into a huge cash generator.
The prospects for a full-blown takeover for Drahi are less clear cut given Kwarteng will be able to block him going above a 25% stake if it is deemed in the national interest.
This inclination towards protectionism probably also nixes interest from the private equity sector if it is followed through.
KKR’s bid approach for Telecom Italia may provide the test case for buyout firms in the highly-regulated European telecoms industry. What the government and regulatory authorities in Rome say may have reverberations across an entire continent.
The current interest in the industry does suggest its constituent parts are significantly undervalued. Private equity can sniff a bargain from 1,000 paces.
Perhaps M&A interest may focus the investors’ minds on the inherent value of the companies controlling the pipework for the digital economy. But don’t count on it in London where short-termism has been crafted to a fine art.
It’s interesting that Vodafone also gets mentioned in passing with BT as a possible bid target. It probably comes without the regulatory baggage of BT. Perhaps that’s where the smart money will be congregating - toward the Voda (though its debt pile may put some off).
It will be interesting to see how all the permutations play out.