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Patrick Drahi bought a 12% stake in BT Group Plc and pledged to support its high-speed broadband rollout, an unexpected move that marks a return to form by the deal-hungry French-Israeli cable billionaire.
Drahi’s newly created company Altice UK acquired 1.2 billion shares of Britain’s dominant phone company, it said in a statement on Thursday. The stake is worth about 2.2 billion pounds ($3.1 billion) as of Wednesday’s close and makes him the company’s biggest shareholder.
The entrepreneur has a history of challenging the old incumbents in Europe’s telecommunications industry and has often driven far-reaching change and asset sales at the companies he’s invested in. More recently, he’s taken a break from major deals to focus on paying down debt.
The new stake in BT is a “significant surprise,” said Berenberg analyst Carl Murdock-Smith, calling it “a proper curveball.”
Drahi said he’ll use Altice’s expertise in rolling out fiber networks to help BT expand its own. The British company has been looking for a partner to help it build out an extra 5 million fiber optic connections by 2026, opening up its infrastructure to an external investor for the first time. Altice said it has no plans to launch a full takeover bid for BT.
Read More: BT Drops as it Explores Joint Venture to Boost Fiber Rollout
BT shares rose as much as 4% in London on Thursday. The stock price has increased by about 41% so far this year.
BT said in a separate statement that it welcomes “all investors who recognize the long-term value of our business and the important role it plays in the U.K. We are making good progress in delivering our strategy and plan.”
Drahi established himself by buying and selling on small cable companies in France, then embarked on a debt-fuelled acquisition spree that turned his modest cable TV and phone group into one of the world’s biggest media and telecom companies. The business is still lumbered with 35 billion euros ($42.6 billion) in debt, according to data compiled by Bloomberg.
Drahi didn’t disclose how he planned to pay for the new stake, which a company spokesman said was acquired over the past few days. Drahi has been exploring options to tackle some of his European business’s costly bonds after taking the French telecom and media company private in January.
Drahi will hold a stake comparable to that of Deutsche Telekom AG. Representatives for BT and Altice declined to give further details on the nature of the new relationship, or how Altice will contribute to the fiber rollout.
BT’s Chief Executive Officer Philip Jansen is looking for ways to share the burden of the costly network upgrade after years of shrinking earnings. Jansen has said a nationwide fiber rollout may cost 15 billion pounds.
Bloomberg reported in March that BT’s board remained divided over the pace of changes needed at the company, following the unexpected resignation of Chairman Jan du Plessis. Still, the company has the support of the U.K. government, which is pushing to expand access to fast internet connections, and Prime Minister Boris Johnson has discussed a subsidy for rural broadband.
“The purchase of a 12.1% stake in BT by billionaire Patrick Drahi’s Altice is a testimony to the U.K. carrier’s potential to increase midterm profit and cash flow, we believe, thanks to management’s 5G and full-fiber-infrastructure investments, and a 2 billion-pound cost-cutting plan. BT is making good progress, but upside to consensus for fiscal 2021-22 and 2022-23 may be limited, in our view, with a takeover bid looking unlikely.”
Matthew Bloxham, BI telecoms analyst
Following the announcement on Thursday, Altice’s euro-denominated notes with maturities between 2025 and 2029 were down around 0.6 cents on the euro to prices ranging from 95 to 100 cents depending on the bond, according to CBBT data. BT’s 500 million-euro hybrid notes due in 2080 were down 0.8 cents on the euro to 98.9 cents, the biggest drop in a year.
The new entity, Altice UK, was established to hold the shares in BT and is separate from Drahi’s European and U.S. businesses, the company said in the statement. It’s owned by Drahi’s Next Alt Sarl, which also controls Altice USA, Altice France, Altice International and auction house Sotheby’s.
Although Altice said it would not pursue a takeover offer for BT, U.K. rules mean that it could choose to do so after six months.
James Ratzer, analyst at New Street Research, said the move will raise questions including whether Drahi plans further share increases or a full takeover of BT, whether he plans to ask for a board seat, and whether he could act in concert with Deutsche Telekom, or another backer, to launch a takeover.
The acquisition comes as BT paused compulsory redundancies in return for its biggest union postponing a strike ballot set for June. BT is also talks to sell a stake or all of its sports-broadcast division, BT Sport, possibly to a U.S.-based media or tech giant, according to people familiar with the matter.
(Updates to add additional context throughout)
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