BT has rejected a GBP18 billion offer for its fixed-line network from a consortium led by WestLB.
The Sunday Times newspaper reports that UK telco BT has received a GBP18 billion offer from a consortium led by German bank WestLB for its fixed-line network, including the ‘local loop’ (wires that connect homes and businesses to local exchanges), the exchanges, and the connections linking exchanges. The offer comes on the back of BT’s rejection of a GBP8 billion offer from the Earthlease consortium for the local loop alone.
While the WestLB offer is interesting, it doesn’t look likely to succeed. According to the newspaper, it was tabled some time ago, and BT has rejected it without serious consideration. This is no surprise. Even though the sale would have allowed BT to keep its customer base and rent capacity from the consortium, it would still have been a major strategic change.
BT is still GBP17.5 billion in debt, but it has managed to cut this from over GBP30 billion. The WestLB offer would eradicate BT’s debt completely, but at a time of low interest rates, at least some debt level should be manageable. Sacrificing most of the wholesale business would not necessarily be a good move, even if the price were above the GBP20 billion value that analysts place on the network. While the strategy worked for the former British Gas, BT will have much less chance of leveraging its customer base than Centrica has managed. The utilities market is already dominated by major groups, as is the pay TV market.
News that major BT shareholders are urging the company to reconsider the Earthlease offer could prove more important. That deal would separate the local loop, which is a natural monopoly, from the rest of the infrastructure, which is a competitive business. It would cut BT’s debt but still leave its wholesale arm as a major player. Particularly since Earthlease is considering a bid for the whole company if its offer is rejected, BT should seriously consider selling the local loop once the wireless demerger is out of the way.
