(Bloomberg) — Patrick Drahi has raised his stake in BT Group Plc and said he won’t make a takeover offer, pursuing an approach of creeping control that could flush out other interest from private equity or rival telecom operators.
The telecom tycoon raised his holding to 18% from the initial 12.1% he bought in June, creating a stake worth more than 3 billion pounds ($4 billion) based on the company’s share price Monday. Though his statement Tuesday means he can’t bid for BT for another six months, deal chatter will continue as the company’s depressed share price has long made it the subject of speculation.
Drahi’s purchase was his first move since takeover rules preventing him from further purchases after his June stock acquisition expired on Saturday. His statement that he does not intend to make a run at BT can be abandoned if someone makes an offer for the company, or if its board agrees to a takeover from Altice UK, the vehicle that bought the shares.
BT shares dropped as much as 5.3%.
“Some people might be disappointed” that no bid from the billionaire is coming for at least another six months, said New Street analyst James Ratzer in a note to clients.
The self-imposed pause in BT activity may look out of keeping for Drahi, 58. The French-Israeli-Moroccan built a telecom and media empire in Europe and the U.S. through a strategy of debt-fueled acquisitions of at-risk companies, that were soon followed by deep cost cuts, restructurings and layoffs.
BT’s second biggest holder, Deutsche Telekom AG, has openly fanned speculation of deals since Drahi’s entrance, with CEO Tim Hoettges calling the company a “king maker” in any potential moves.
U.K. rules mean a company is obliged to make a takeover offer if they hit a 30% shareholding. Neil Campling, head of telecom, media and tech research at Mirabaud, pointed out that were Altice to purchase the 12% stake owned by Deutsche Telekom, that would trigger a mandatory offer.
The U.K. government responded swiftly to the latest purchase with a statement that it was “monitoring the situation carefully” and would “not hesitate to act if required to protect our critical telecoms infrastructure.”
From Jan. 4, ministers will gain stronger powers to intervene in takeovers and would likely examine any bid for BT under the recently passed National Security & Investment Act.
The London-based phone and broadband company had been bracing for an offer and a drumbeat of deal speculation has grown for years. Its market capitalization has halved since 2016 and it’s hired defense advisers from Robey Warshaw and Goldman Sachs Group Inc. following Drahi’s surprise entrance as the company’s biggest investor in June.
Drahi’s higher stake comes two weeks after new chairman Adam Crozier took the reins of BT’s board. The French telecommunications tycoon had already been holding discussions with senior BT executives and quizzing them about growth plans, according to a person familiar with the matter.
Its shares have fallen more than 50% in the last five years, thanks to competition, Brexit, an accounting scandal, and regulation including the ban of key 5G wireless supplier Huawei. It’s also grappling with two enormous obligations: its pension deficit and its debt pile.
The cost of protecting BT’s debt against a default has been surging on speculation about a possible takeover by Drahi. There is the risk of a leveraged buyout, as well as the possibility that he’ll encourage management to consider other options, such as selling or spinning off infrastructure unit Openreach.
(Updates with analyst quotes in fifth, eighth paragraphs, updates shares in fourth paragraph.)
— by Thomas Seal with assistance by Benoit Berthelot, Kitty Donaldson, Tasos Vossos, and Michael Msika