14 July 2023

BT on alert against takeover by Deutsche Telekom

Rumours of a possible bid by Deutsche Telekom, one of BT Group's largest shareholders with a 12% stake, caused a slight drop in BT Group's share price. The telco has been working to defend itself against a potential takeover since 2021 in response to French-Israeli telecoms billionaire Patrick Drahi's increasing stake, which now stands at 24.5%.

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Deutsche Telekom's interest in the BT group may be affected by the impending departure of CEO Philip Jansen early next year, which could create a leadership vacuum at the company. However, insiders and investors see Marc Aller, the head of BT's consumer division, as a suitable successor. Succession planning for Jansen comes as the British telecoms group embarks on its most radical cost-cutting exercise since its privatisation in the 1980s. Under Jansen's leadership, BT plans to cut 42% of jobs by the end of the decade. Among other things, BT is also expected to be able to use artificial intelligence and digitalisation to make savings.

Despite the potential takeover, BT Group faces challenges, including significant debt of around GBP14 billion. The company is also in the midst of rolling out new fibre optic cables across the UK to replace the old copper telephone wires, at an estimated cost of GBP15 billion. This significant capital expenditure is expected to impact profits and dividend payments, hampering BT's share price growth.

Recent comments by Deutsche Telekom's CEO suggest a possible intention to make a bid for the BT group, further increasing speculation about the company's future. Moreover, if Deutsche Telekom were to join forces with Patrick Drahi and make a joint bid, their chances of success would likely be higher.

"This is potentially another major M&A transaction in the telecoms sector in Europe."

-Jan Kudlak, TMT Deloitte Leader