One-third of the holding has gone immediately, cutting the French group’s stake to 2.66%. Another third is being earmarked for purchasers of £520 million worth of bonds that Orange is issuing – but bondholders will have to wait until 2021 before they can exchange them for BT shares.
“In case of exercise in full of the exchange rights underlying the bonds, Orange would retain a 1.33% stake in BT,” said Orange. But the company warned that it might sell off the rest of its stake within months.
Orange would say only that it will hold on to those remaining shares for another 90 days, except for certain conditions – including the possibility of selling those shares to “a strategic investor”.
That strategic investor could not be Deutsche Telekom, which owns 14% of BT following BT’s acquisition of mobile operator EE in January 2016: until then, EE had been a Deutsche Telekom/Orange joint venture. Deutsche Telekom cannot increase or sell its holding in BT until three years after the completion of that deal, January 2019.
Behind the Orange sale, though Orange did not say so explicitly, is BT’s lamentable share performance this year. In May last year its shares were trading at around £4.52 each. At the pound/euro exchange rate at the time, each BT share Orange owned was worth €5.92.
Today BT shares opened – after Orange’s announcement – at £2.89, giving the company a market capitalisation at only £28.7 billion. And meanwhile the pound has slumped against the euro over the past year, thanks to the UK’s referendum vote last year to leave the European Union, so each BT share is now worth only €3.20 – a fall of 46% in euro terms.
That alone means that Orange’s 398 million shares in BT, worth €2.35 billion a year ago, were worth €1.27 billion yesterday – a loss of €1.08 billion.
BT has had a run of bad news this year. It wrote of £530 million at the start of the year because of a fraud in the Italian operation of BT Global Services. Ofcom, the UK regulator, fined it £42 million because its last-mile business, Openreach, falsified compensation payments to companies such as Vodafone – and BT is paying £300 million compensation to those Openreach customers.
Meanwhile Ofcom is still considering the long-term position of Openreach as a directly-owned subsidiary of BT and might demand a separation.
Today BT is worth only €32 billion. In 19 months’ time, when Deutsche Telekom can increase or cut its 14% holding, now worth €4.45 billion, it might find the UK operator an attractive bargain. Whether it’s interested depends a lot on how the UK’s negotiations to leave the EU are going.
