Shares in Britain's BT jump on report it could sell a stake in Openreach

Shares in BT 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.

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 TalkTalk 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 it 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 fiber broadband connections to 20 million premises by the late 2020s, a program 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.

Chief Executive Philip 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 authorized 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 capitalization is 10.7 billion pounds.

Its shares, which fell to an 11-year low of 98 pence on Thursday, gave up some early losses and were trading up 6% at 108 pence at 1000 GMT on Friday. ($1 = 0.8199 pounds)