BT boss Patterson axed after shareholder pressure

BT Group chief executive Gavin Patterson will step down later this year after the telecoms giant's board wielded the axe after pressure from major shareholders.

With the search for a successor already underway, an appointment is expected during the second half of the year.

Patterson, who has been at BT for 14 years and CEO since September 2013, has faced growing pressure as disappointing results sent the company’s share price to a five-year low, with stories in the press that major shareholders were pushing for a replacement to be bade at the top.

Chairman Jan du Plessis, who joined the group a year ago, indicated the strategic direction of the company was not likely to change with a new CEO but a different person was needed to carry it out.

"The board is fully supportive of the strategy recently set out by Gavin and his team," he said. "The broader reaction to our recent results announcement has though demonstrated to Gavin and me that there is a need for a change of leadership to deliver this strategy."

Five of BT’s 20 largest investors this month expressed reservations about Patterson’s suitability to the Financial Times, with a number telling the paper that they were seeking meetings with du Plessis to voice their concerns, including about BT’s acquisition of sports broadcasting rights.

Confirmation of Patterson's departure comes a day after it was announced that BT had purchased further Premier League broadcast rights to take its total offering per season to 52 games, taking its total cost to £975m to show 52 games per season over three years.

Du Plessis pointed to "a number of concrete initiatives" launched recently by Patterson, including the restructuring revealed last month that will see 13,000 back office jobs slashed but 6,000 more new operational staff hired as part of a strategy rejig that aims to cut £1.5bn of costs within three years.

"While BT is a very demanding business, with multiple stakeholders, we do have significant opportunities ahead of us," the South African said. "I am confident that, for the remainder of his term, Gavin and his senior management team will continue to display the energy required to deal with every dimension of the task at hand."

Analysts said Patterson's highlights package would include keeping hold of the prized Openreach division in an arms-length company within the group, but own goals as well as the expensive move into football rights included an accounting scandal at the Italian division that rattled shareholders and resulted in a record drop in the share price last year.

BT shares rose 3% initially but after nearly an hour of trading were down slightly to 202p.

Shareholders were delivering a tepid welcome to a possibly long overdue change at the top, said analyst Mike van Dulken at Accendo Markets, noting that BT shares rallied 85% from circa 270p in 2013 to highs just shy of 500p in late 2015 on hopes of a new strategy paying off, but have since declined around 60% to flirt with the psychological 200p last seen six years ago.

"Faith in the strategy has implemented has been waning, with big money spent on premiership football rights, buying back into mobile, a bulging pension deficit and an increasingly attractive divided yield that has merely begged questions about its sustainability.

But with the board saying it is 'fully supportive' of Patterson's strategy, van Dulken wondered "what’s the point in changing the man at the top if he is merely tasked with carrying on with a flawed strategy? Patterson is also potentially in place for another 6-7 months. Will he continue to lead his troops on the same bumpy trail?"

Neil Wilson at Markets.com said the move into football rights "was a mistake and evidence that management lacked focus under Patterson".

"The recent bagging of more games was even more expensive than previous deals. Fundamentally the TV foray seems to have failed as the number of new subscribers each quarter has collapsed and, critically for the strategy, it's not produced the broadband customers that it was supposed to. Similarly the EE acquisition was expensive but hasn't worked out as planned. BT has become a genuine quad-play provider under Patterson, but it's come at a huge cost to the business at a time when debt has been allowed to spiral," Wilson said.

He pointed to good recent news of the plans are in place to fix the pension black hole of £11.3bn, allowing the new CEO to start with a relatively clean slate on that front.

UBS analysts said they thought an incoming CEO will have to address issues including: the pace of FTTH rollout at Openreach; the strategy around BT Sport; the future of Global Services; execution of the Transformation programme and how much of the £1.5bn pa of cost savings should be re-invested back into the business.

With BT having pulled down expectations post Q4 results, UBS thinks the guidance is conservative and leaves some headroom for Openreach to accelerate its fibre (FTTH) rollout, meaning on a sum-of-the-parts and discounted cashflow valuation leaves the shares looking "relatively cheap", offering a 9.0% calendarised equity free cash-flow yield and 7.6% dividend yield.