BT surges as board said to be on alert for takeover approach

BT shares surged on Monday following a weekend report the company is on alert for takeover approaches after the collapse in its share price.

According to Sky News, BT has asked bankers at Goldman Sachs to update its defence strategy as it looks to fend off potential takeover approaches from industry rivals and buyout firms after the suspension of its dividend sent the shares tumbling to their lowest level in more than a decade.

It was understood that boutique investment bank Robey Warshaw, a long-standing adviser to Vodafone, may also be asked by BT to play a role. Sources told Sky that BT had not yet received a formal approach from any potential suitor.

At 1005 BST, the shares were up 5.1% at 106.97p.

Neil Wilson, chief market analyst at Markets.com, said: "At a valuation of £10bn, the group has become a definite target. And whilst BT has a lot of legacy baggage - notably £18bn in net debt and a major pension deficit - it’s also got the Openreach crown jewel, which would be worse considerably more on its own than the group is valued today.

"Of course, there is no formal offer, but shares could jump further if one emerges. Deutsche Telekom, which owns 12% in BT, is seen as a likely candidate. The question is whether there could be more bombed out UK-listed stocks that could be taken out by a timely takeover...perennial rumour-favourite ITV, for instance?"

David Madden, market analyst at CMC Markets, said: "Seeing as BT are tasked with rolling out the country-wide full-fibre broadband plan, any bid for the company is likely to have a political angle, so any potential suitors would need to essentially get the green light from Westminster."

BT pulled its dividend in May as it posted a drop in full-year profit and revenue due to the coronavirus pandemic.

The company said the final dividend for 2019/20 had been suspended, along with all dividends for 2020/21 "to create capacity for value-enhancing investments and managing confidently through the Covid-19 crisis". It said it expected to resume dividend payments in 2021/22 at an annual rate of 7.7p per share.

For the year to the end of March, it reported a decline in pre-tax profit to £2.35bn from £2.67 bn the year before, while revenue edged down 2% to £22.9bn. The profit figure included charges of £95m as a result of Covid-19, mainly reflecting increased debtor provisions.

The drop in revenue, meanwhile, was attributed to the impact of regulation, declines in legacy products, strategic reductions in low margin business and divestments.