Reliance Industries Limited considering a bid for UK's BT Group

In what could become the largest M&A ever involving an Indian telco, Reliance Industries Limited has set its eyes on the UK's BT Group, one of the largest telcos in Europe.

RIL's Mega Plan to Enter European Market, via BT Group

According to the sources, RIL will look to put in an unsolicited offer to buy into the company. Notably, the acquisition can prove tricky; BT Group has 419 companies as stakeholders. Therefore, Mukesh Ambani will have to find a way to convince enough investors to sell their stake to get a controlling share in BT Group. Two months ago, Reliance had put in a bid for T-Mobile's the Netherlands unit. That move solidified RIL's plans to make Jio a global phenomenon, however, a PE consortium outbid Ambani for that unit. That had only delayed the move in the European market.

Given that Reliance Jio has been such a success in the Indian telecom sector, with over 400 million users, Mukesh Ambani wants to enter other markets. Right now, Airtel is the only Indian telco to operate abroad in the form of Airtel Africa. For Jio's part, Ambani has set his eyes on Europe; the bid for T-Mobile's Dutch arm further proves that point. Therefore, BT Group has emerged as a potential target for entry, first in the British market, then in Europe. However, Ambani has the likes of Altice and T-Mobile to deal with, since they hold some of the largest stakes in BT. Altice, France's second-largest telco, bought a 12.1% stake in BT Group this year. Also, another 12.06% stake of BT lies with Deutsche Telekom.

Therefore, Ambani has not been the first one to come up with the idea of buying a stake in BT Group. However, if we believe the sources, he is coming to buy the whole thing.

BT Group - A Historic Telco for A Historic Takeover

British Telecom Group, or BT Group, has a history going as far back as the mid-19th century. However, BT as a company came into existence in 1980, and since then, it has become the largest telecom operator within the British market. Notably, the conglomerate RIL has been looking to take over consists of BT, BT Sports, Plusnet, and Openreach. BT has a market base of 30 million individual users and over 1 million enterprise users. With a revenue upwards of £21 billion, BT Group's market cap stands at $20.63 billion. The telecom company has operations across 180 countries in the world, with a huge subscription TV presence in BT Sports, and BT Group also provides IT services.

However, the company has seen several issues in recent times, and its stock has fallen by more than half in the last 5 years, hitting an 11-year low in 2020-21. However, since 2019, the company has been improving, after seeing a couple of years of upheaval. So far, it has managed to reduce cost projections for FY23 by £200 million to £4.8 billion. It has also managed to achieve cost savings of £1 billion 18 months before the target.

Therefore, if RIL manage to buy it outright, it would become the largest outbound M&A deal by an Indian company. However, the considerations have only started, and there are no bids; Reliance might not even go through with it. For now, speculations are rife; no one's sure if Ambani has even met with BT's leadership. BT Group, though, has more than its telecom business attracting potential buyers; Amazon, ITV, British Sports have expressed their desire to buy BT Sports' broadcasting business, which has the rights to lucrative competitions such as the English Premier League, and the UEFA Champions League.

The Importance of December 11

BT has been the subject of speculation ever since its single-largest shareholder, Patrick Drahi, who also owns Altice, bought a stake via Altice UK. In June, the 12.1% stake he bought cost $2.5 billion, at a valuation of $20.66 billion. He had cited BT's imminent fiber rollout as the reason for acquiring the stake; incidentally, the fiber services have been expected to raise the value of the stake. Hence, sources expect Reliance to partner with BT by funding its fiber ambitions. It might do so by in turn acquiring a stake in the company. However, the latter has said that it will fund the rollout itself; Reliance has seemingly no choice but to wait for the right moment.

According to British takeover laws, no stakeholder that pledges to not launch a takeover bid can do so for 6 months after acquiring the stake. Called a "standstill agreement", for Patrick Drahi, that duration ends on December 11. Therefore, even though he publicly said he won't look to acquire BT, Reliance can find itself in a bidding war with a telecom tycoon.

Drahi is not alone in his pursuit of BT; Deutsche Telekom CEO Tim Hoettges has gone on record in September that the telco will keep "all options open". Notably, the stake Deutsche Telekom acquired via T-Mobile lies in its pension fund, and the company might look to review its options to extend the stake further. Orange Telecom also stands as a potentially interested party, though the French telco has not stated it publically. Mukesh Ambani might also find himself locking horns with the British Government itself. BT has been deeply involved in the government's networking, therefore, any takeover bids will face still resistance from the government.

It seems like Mukesh Ambani will need more than just money to get his hands on BT. The events that unfold after 11th December will decide whether Reliance will go through with it.

Why Reliance Wants BT

On the face of it, there is a simple reason behind RIL's pursuit of BT. As has been apparent for the last 5 years, Reliance Jio has been a success for Mukesh Ambani, and Jio Platforms Limited has become the largest company within the RIL conglomerate. Therefore, expansion to other countries is the next logical step, given Jio's size. If Reliance pulls it off, this would not only become the largest M&A deal involving an Indian company but also propel Jio to further dominance. With the financial systems Jio and RIL are connected, Ambani can invest heavily, with India business backing Jio for a significant while.

Therefore, the question remains: will Reliance go through with it?