Drahi-for-Bharti swap gives BT partial relief

Noverhang. BT Chief Executive Allison Kirkby can breathe a sigh of relief. India’s Bharti on Monday announced it was buying French telco mogul Patrick Drahi’s near-25% stake in the $18 billion British telecom operator. The UK group’s boss can stop worrying about an over-indebted shareholder who might have been forced to sell his stake at bargain prices. But the switch still leaves her with a crowded shareholder base.

News of the Drahi-for-Bharti swap pushed up BT’s stock price by more than 6% on Monday morning. Investors had been worrying the French tycoon, who first started buying in May 2021, might be forced to unwind his purchase as he grapples with heavy debts in his Altice telecom empire.

Bharti will initially acquire a 10% stake in BT, corresponding roughly to the part Drahi owns outright. The rest of the portfolio, which the Indian group will acquire after receiving UK regulatory approvals, consists of derivatives contracts the French tycoon used to build his stake. Bharti wants to unwind that portfolio in an orderly fashion, with help from financial adviser Barclays, with the goal of owning the shares directly.

Drahi’s BT bet looks a costly mistake. Based on the prevailing BT share price when Drahi announced his investments, the stake cost about 4.5 billion pounds. Bharti said its purchase was based on the market price, which has recently ranged between 130 and 142 pence per share, implying an outlay of just 3.3 billion pounds at the mid-point. However, derivative contracts which limited Drahi’s downside may have transferred part of the hit to his banks.

Kirkby, whose efforts to turn around the British group have boosted the stock since she took charge in February, celebrated the arrival of a new shareholder “with a strong track record of success”. And the Indian group soothed potential fears that Britain’s new government might feel at the prospect of a large overseas group investing in a landmark company. Bharti will not ask for board representation – at least for now – and has volunteered to undergo the security checks the regulator may initiate.

Yet Bharti’s intentions are as unclear as those of the French tycoon it is replacing on BT’s shareholder register. The Indian group will sit alongside Deutsche Telekom, with a 12% stake, and Mexican billionaire Carlos Slim, with a 3% holding. These may be demanding shareholders, but at least they can all afford the patience Kirkby has asked for as she tries to turn around BT.