BT rises on Openreach sale report, company calls FT story 'inaccurate'

LONDON (Reuters) - Shares in BT BT.L rose as much 9% on Friday from decade lows after the Financial Times said Britain's biggest broadband operator was in talks to sell a stake in its Openreach networks unit.

FILE PHOTO: Company's logo is displayed at British Telecom (BT) headquarters in London, Britain, November 15, 2019. REUTERS/Simon Dawson

The company did not issue a denial to the stock market, but the unit’s staff were told the report was “inaccurate”.

Openreach boss Clive Selley said in an internal message: “I spoke to (BT CEO) Philip Jansen last night after the story broke in the newspapers.

“He is very clear - the story is inaccurate. Openreach is staying in the BT Group.”

The report said potential buyers had held talks with BT in the last three weeks and that the talks were in an early stage and the structure of any investment remained under discussion.

Openreach, a wholly owned subsidiary of BT, operates Britain's nationwide broadband network. BT and rivals such as Sky CMCSA.O TalkTalk TALK.L use its lines to provide broadband to their customers.

The FT said potential buyers of a stake included Australian investment firm Macquarie and an unnamed sovereign wealth fund. However, a source close to Macquarie told Reuters the investment firm had not expressed an interest in buying a stake and was not in talks with BT.

BT declined to comment on the report. Analysts at Jefferies valued Openreach at 23 billion pounds ($28 billion), saying that was towards the top of an analyst range of between 12 billion pounds and 25 billion pounds.

A banking source familiar with the matter said BT was in no rush to do a deal and no mandate had been issued to sell a stake in Openreach.

Openreach is the most profitable business within BT, producing core earnings of 2.86 billion pounds in its last financial year.

BT has set an ambitious target to build fibre broadband connections to 20 million premises by the late 2020s, a programme it estimates will cost 12 billion pounds ($15 billion).

The company suspended its dividend last week to bolster its balance sheet for the economic downturn already starting to emerge from the coronavirus pandemic and to help fund investment in its broadband and 5G mobile networks.

Jansen said last Thursday that despite the economic uncertainty, a surge in the use of mobile phones and data caused by the pandemic had made the network upgrade “a matter of extreme urgency”.

A 2 million pound share purchase by Jansen on Wednesday also indicated that substantial talks had not started because such a transaction would break insider trading rules if a material deal were being negotiated.

Analysts at Jefferies said: “We wonder how that transaction could have been authorised if BT were at the same time engaged in non-public negotiations of such a material nature, even at an early stage.”

BT’s current market capitalisation is 10.7 billion pounds.

Its shares, which fell to a 11-year low of 98 pence on Thursday, closed up 5% at 107 pence on Friday.

Reporting by Paul Sandle and Pamela Barbaglia; editing by Kate Holton, Susan Fenton and Louise Heavens