Interactive Investor

BT takeover hopes dashed, but Rentokil cleans up

14th December 2021 13:38

Graeme Evans from interactive investor

Despite increasing his shareholding in the telecoms giant, tycoon Patrick Drahi backs current management, reports our City expert.

The roller-coaster ride for BT Group (LSE:BT.A) shares in 2021 has been summed up in one session, after billionaire tycoon Patrick Drahi spent another £1 billion on bolstering his stake.

The purchase took his BT shareholding from 12.1% to 18%, but any hopes this might be building up to a full takeover immediately cooled when Drahi declared his full support for existing management and said there was no current interest in bidding.

Drahi and his Altice group are now prevented under Takeover Panel rules from increasing the stake for another six months, having been released from a lock-up period only three days ago.

Shares fell 6% or 10.85p to 164p in the FTSE 100 index, reversing some of the 32% rise seen between mid-October and the end of Drahi's first takeover exclusion period on Friday.

The widely held stock had been trading above 200p in mid-June, after Drahi appeared on the BT shareholder register just ahead of the 12% stake held by Deutsche Telecom. Shares have retreated since the summer, partly as the complexity of BT's pension scheme and a potential veto by the government makes a full takeover approach appear much less likely.

The possibility remains that Drahi might press for a sale of BT's consumer division that includes the EE mobile phone network, but for now he's not rocking the boat. He said today: “Over recent months we have engaged constructively with the board and management of BT and look forward to continuing that dialogue.

“We continue to hold them in high regard and remain fully supportive of their strategy, principally to play the pivotal role in delivering the expansion of access to a full fibre broadband network, an investment programme which is so important to both BT and to the UK."

That £15 billion plan involves upgrading 25 million homes and businesses from copper phone networks, but it is potentially facing increased competition following talk of collaboration between Virgin Media O2 and Sky. A joint venture involving the Openreach arm and an external partner is one option enabling BT to connect up to five million more homes.

Drahi's support for BT's management comes after chief executive Philip Jansen hit a £1 billion cost savings target 18 months early, prompting him to bring forward a £2 billion cost savings target from 2025 to 2024.

In response to today's developments, BT said it will “continue to operate the business in the interest of all shareholders”, adding that it remains focused on the “successful execution of its strategy and building on recent performance momentum”.

One takeover that did take place in the FTSE 100 index today involved Rentokil Initial (LSE:RTO) after the pest control and hygiene services business unveiled plans for the £5 billion purchase of US firm Terminix.

The combined business will employ about 56,000 staff and serve 4.9 million customers, providing Rentokil with a major platform for growth in North America. It noted that prospects in the pest control sector were strong as population growth, urbanisation and climate change increases demand for its services.

Shares slid 7%, however, after Rentokil revealed that 643 million new shares will account for 80% of the purchase price. Terminix shareholders will end up owning about 26% of the enlarged company after the deal was priced at a 47% premium to last night's share price.

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