Any potential bidder for British Telecom has some serious hurdles to overcome, according to UBS.
Reports yesterday suggested Reliance Industries, the company run by India’s richest man Mukesh Ambani, was looking at a possible offer, though these reports were subsequently denied.
France’s Altice, the vehicle of tech billionaire Patrick Drahi and that has a 12% stake, is also free to make an offer or increase its stake in the UK telco from 10 December.
UBS, though, points out that the UK’s National Security and Investment Act gives the government a veto on M&A in sectors including communications and it has been active in a number of recent deals in various industries.
Second, in the event of a change of control, the BT Pension Scheme Trustees could look at the pension solvency basis rather than an actuarial basis and that could see the deficit rise to more than £23bn as of June 2020 compared to an actuarial deficit of £7.9bn.
Excluding the pension, BT has an enterprise value of around £35bn and UBS notes the recent moves for both Morrisons and DMGT saw higher than expected pension deficits.
Sell is UBS’s investment view with a target price against the market’s 161p, down 1.5% today.