The shares rallied but aren’t exactly pricing in the upside, which suggests the City is giving little credence either to the purported takeover approach, let alone its chance of success.
It seems BT’s Philip Jansen and his team have taken the behind-the-scenes machinations a little more seriously.
Goldman Sachs was reportedly brought in to help shore up the telco’s bid defences alongside advisory firm Robey Warshaw.
BT’s team are probably right to start manning battlements.
There is a near record amount of private equity money undeployed and very few potential bargains out there for the usually opportunistic buyout firms.
According to Preqin, a firm that tracks deals in the PE sector, US$1.48tn, more the GDP of Spain, is sloshing around the system looking for a home.
BT, which has lost 44% of its value in the year to date, stands out because it fits the PE mould perfectly.
Based on its historic share price it looks oversold, its infrastructure business, Openreach, has a monopoly position, while the sector itself is ripe for consolidation.
And, as Wall Street bank Citi, pointed out: “Unlike the public market, the private markets tend to appreciate the longer-term benefits of guaranteed cash flows generated after the completion of fibre-to-the-home rollout, especially in an environment with low interest rates.”
The fibre-to-the-home rollout project is worth a mention, not just because of the financial commitment (£12bn), but the fact it brings with it a great deal of government and media scrutiny. So, buyer beware.
The surprise at this stage is not that BT is in the crosshairs, but how few other opportunities there are on the FTSE 100.
But while they may be in bargain territory, the risks are also huge.
Both are relying on an upsurge in the travel industry in the next few years (not a given), are cash poor (not a good look for PE) andpose a refinancing risk.
ITV (LON:ITV), off 59%, may well be attracting some sideways glances – but more likely from within the media industry than from private equity (though never say never on that score).
Scrolling through the list of this year’s biggest Footsie losers, it’s hard to see anything else that lights up the way BT does.
The banks, down between, 40-55%, would likely receive the barge-pole treatment given their huge balance sheets and penchant for self-harm.
The remainder of the blue-chip big losers are either cyclical plays or focused on industries in structural decline such as tobacco.
One laggard that may fit the bill for PE that has flown below radar thus far is GlaxoSmithKline (LON:GSK).
Its shares are down 13% in the year to date, which doesn’t seem a great deal given the carnage seen across the Footsie. However, it’s part of a sector that’s never been hotter.
Covid, and the focus on a search for a vaccine has brought to the fore the merits of investing in healthcare companies.
This has driven AstraZeneca ahead 14.5% this year, bringing into sharp relief GSK’s underperformance.
If you look at the prodigious cash piles GSK generates and if you are an ambitious banker, you are probably thinking ‘maybe, just maybe’.
That said, at £77bn GSK makes BT looks less like a starter than an amuse bouche at £15bn.
GSK’s net debt £23bn, only £5bn more than BT’s.
This comparison comes knowing full well that £5bn is huge amount of money, but it also recognises that in the era of the trillion-dollar company it is also pocket lint.
Scale aside, the impediment to private equity is likely to be an equally moribund competitor to Glaxo making a bid, which leaves only one game in town – BT.