- Bharti Global to acquire a quarter of BT Group, the largest service provider in the U.K.
- Bharti plans to explore more investment options in Europe
- BT gains a long-term stable investor while Patrick Drahi’s Altice UK is able to sell stake to reduce its debt
India-based Bharti Global is poised to become the biggest stakeholder in U.K. telecom giant BT Group, announcing plans to acquire a 24.5% stake in the company from Altice UK. But one analyst warned the deal could end up being an expensive distraction for both Bharti and BT.
In the first phase of its deal with Altice UK, Bharti will acquire 9.99% of the BT Group. It will acquire the remaining 14.51% once it receives regulatory approval. Bharti Global, which is part of Bharti Enterprises, is not planning to buy the rest of the company.
The deal will help the Bharti Group grow its global presence.
Apart from its base country in India, Bharti Enterprises’ Airtel brand is present in several countries in Asia and Africa, including Bangladesh, Sri Lanka, Kenya, Nigeria, Zambia, Gabon, Congo, Rwanda, Madagascar and Malawi, among others. A few years back, it also acquired a majority stake in U.K.-based satellite company OneWeb, which subsequently merged with Eutelsat.
Its deal with BT Group - which previously invested in Indian operator Bharti Airtel - provides the U.K. operator with a long-term investor. It also allows debt-laden Altice UK to pay down some of what it owes. Altice UK is part of billionaire Patrick Drahi’s corporate empire.
New Street Research said in a note to investors that Drahi will likely only be able to "fulfill 10-14% of the 24.5% stake" by selling his directly-owned shares in BT. "This implies that rather than this deal just being the trade of a (very large) block of shares in BT, it will mean that Bharti is likely to be in the market in the coming months in order to buy 10-14% of BT to take their full direct ownership to 24.5%,"the analysts added.
The deal is also a sign of the growing financial stability of Bharti Airtel, which along with other telcos, recently hiked prices.
“Bharti's financial position is seemingly quite strong, in part because of the weakening of one big rival, Vi [Vodafone Idea]," Matt Walker, Chief Analyst at MTN Consulting, said. "Over the last four quarters (2Q23-1Q24), Airtel's average EBIT and EBITDA margins were 33.2% and 53.4%, while free cash flow margin was 27%. These are all much higher than industry averages."
“With the bulk of 5G costs already incurred and consolidation of assets underway in the Indus group, Bharti may have been looking for external investments,” he added.
An “expensive distraction"?
Though the two companies have some history, with BT owning a 21% stake in Bharti between 1997 and 2001, Walker said the supposed synergies behind the deal aren't apparent.
"Yes, it's ironic that BT once held board seats in Bharti, and now the situation will be reversed. But that doesn't mean the investment will be a success," he said.
Apart from Bharti, Deutsche Telekom (DT) is the second largest shareholder in BT with a 12% stake. America Movil also recently acquired a 3.16% stake in BT.
“On paper, it would seem that Bharti, BT, DT and America Movil could jointly develop network technologies, or pool their procurement resources, or somehow figure out how to evolve into a next-gen telco able to compete with big tech," Walker speculated. "But in reality, these things are very hard, and these companies already have countless partnerships in place with other telcos along similar lines. Personally, I look forward to hearing more from Bharti about the logic of the investment. The risk is that it could end up becoming an expensive distraction for both companies."
However, Neil Shah, Research VP at Counterpoint Research, disagreed with Walker's take.
"The investment by Bharti is poised to strengthen BT's position in the competitive Fixed Mobile Convergence (FMC) market, particularly in the U.K.," Shah said. "As one of the largest telcos globally, Bharti's experience and resources could prove invaluable in helping BT navigate the intensified competition with Virgin Media O2."
“This partnership also reflects the growing trend of Indian tech companies investing in the U.K., fostering deeper ties and driving technological transformation," he concluded.