ALEX BRUMMER: There is a threat of a takeover offer at BT

Philip Jansen may face another challenge before handing over his role as BT CEO to Allison Kirkby at the end of this year.

Aggressive cost cuts and higher prices reversed the decline in BT sales last quarter.

However, questions remain about future ownership. A standstill agreement preventing French-Israeli telecoms investor Patrick Drahi from using his 24.5 percent stake to launch a takeover bid ends on November 24.

With Drahi currently suffering significant losses, it is unlikely that he will get away without looking for opportunities to unlock value.

He may not be the only impatient investor. Deutsche Telekom holds a 12 percent stake in the group, a holdover from BT’s £12.5 billion takeover of mobile group EE in 2016.

Turnaround: Aggressive cost cutting and higher prices have reversed the decline in BT sales. Boss Philip Jansen (pictured) is expected to step down at the end of the year

Investors across Europe are trying to extract value from telecommunications. This week, Vodafone’s new boss Margherita Della Valle agreed to sell the Spanish subsidiary to British buyout firm Zegona Communications for £4.4 billion in the first phase of the restructuring.

Last month, Saudi Arabia’s STC announced it had acquired a 9.9 percent stake in Spain’s Telefónica, which owns Britain’s O2 network.

The government in Rome has spoken out in favor of private equity mogul KKR taking a 20 percent stake in Telecom Italia.

Fierce competition in mobile markets and weak margins in fixed-line and broadband have contributed to national telecommunications companies coming into play.

If Drahi, alone or through an agreement with Deutsche Telekom, were to decide that the time was right for a full or partial takeover bid for BT, it would put the government or its successor in a difficult position.

The current relatively high interest rates would make the economics of a leveraged buyout difficult for BT. But a relatively weak share price makes it an attractive asset.

In the event of a bid for such a strategic company, the government would have to conduct an assessment under the National Security and Investment Act. There could be fears that efforts to bring fiber broadband to every door in the UK could be disrupted.

Some watertight guarantees would be needed for future broadband investments.

The biggest obstacle may well be the BT pension fund. The Pension Protection Fund has historically viewed the problems of BT pension funds as the biggest potential risk it could face.

The BT pension fund is estimated to have a solvency deficit of £11.6 billion.

Trustees and regulators would fear that the agreement of new owners, particularly in a leveraged deal, may not be strong enough and demand corrective action.

Jansen has shown that BT can become more profitable.

BT’s market value of just £12bn means a full offer is far from the realm of fantasy.

Shopping counter

The battle of listed British supermarkets continues.

Sainsbury’s shares rose after the company forecast higher profits for the year. Through lower prices on key items and a high-quality offering, the company was able to regain market share from the German discounters Aldi and Lidl.

Sainsbury’s and market leader Tesco may also benefit from pressures at private equity-controlled rivals Morrisons and Asda. The rise in interest rates in the Western world has increased the cost of borrowing for acquisitions.

Both Asda and Morrisons changed hands when they were bought at premium prices when interest rates were low. This has limited the ability to match prices to no-frills retailers and has shrunk market share.

Ownership is likely to be less comfortable for CEO Simon Roberts and Sainsbury’s. During the pandemic, Qatar’s stability as the main investor at 25 percent may have been comforting.

As Israel and the United States seek to dismantle Hamas and cut off its financial backers, the Gulf state is in the spotlight for supporting Gaza.

Inspector calls

Every child and teacher in England and Wales knows that they must be on their best behavior when receiving calls from Ofsted.

Imagine what the nine members of the Bank of England’s interest rate-setting Monetary Policy Committee (MPC) must have felt at this week’s two-day meeting.

In the corner sat Nobel Prize-winning economist and former Federal Reserve Chairman Ben Bernanke, invited by the Comptroller General, the bank’s board, to assess the old lady’s MPC homework and forecasting skills. Scary stuff!