- The political reaction to Patrick Drahi‘s increased stake in BT (LON: BT) could hit many other London listed stocks
- Drahi has himself ruled out a bid for BT but the economic nationalism engendered could spread to other potential takeover targets
- As examples, consider Rolls Royce (LON: RR), SSE (LON: SSE) and ARM
Patrick Drahi has boosted his stake in the former British Telecom from 12% of the outstanding stock to 18%. Add in Deutsche Telecom with 12% and there’s a suspicion that BT could be in play. Drahi has insisted – and done so strongly enough that he can’t now bid for 6 months – that this is not a prelude to a bid for BT. He’s just investing in what he thinks is an undervalued stock.
What matters here is the political reaction to it all. Stout declarations that no nationally important company like BT could ever possibly be sold to foreigners. The new National Security and Investment Act gives ministers the power to intervene pretty much as they wish. Sure, the law is limited but we’re already seeing people stating that those limits can be broken in “special circumstances” which equates to the political desire to do so.
What this means is that London – Britain – just became a less attractive place to buy or takeover a company. For now, there is not only the commercial logic to consider but also that political reaction and possible interference. This will impact upon share valuations of likely and even possible targets.
Not that ARM is listed but we can see this new political stance in that story. ARM was sold off to Softbank a few years back – so, it’s owned ultimately by a Japanese company. They now want to sell it to Nvidia, an American one. There’s a lot of shouting here in Britain that such a British company cannot be sold without that political acquiescence. Except it’s not a British company anymore now, is it? It’s owned in Japan who wants to sell it into America. But that is the sort of thing that this new economic nationalism is going to produce.
A share where this won’t have an impact is Rolls Royce. Partly because it’s difficult to think of someone who would try to take it over – the other two jet engine manufacturers would not be allowed to on competition grounds anyway. Further Rolls Royce is pretty obviously politically protected from takeover even if not specifically in law. No, we all know that some likely lad turning up with a suitcase of cash wouldn’t be allowed to complete a bid.
Where it might well have an impact is in interim cases like SSE. Elliott Partners is making the – possibly valid – case that the company should be split into generating and retail arms to maximise shareholder value. But Elliott Partners are American, SSE might be able to hide behind this new insistence on foreigners not being allowed to buy “essential” British companies.
The real effect of this BT furore is to bring out into the open the new political mood. Foreigners won’t be allowed to buy Britain PLC. Well, OK, maybe, but what that does is reduce the value of all of those British companies that might have been bought. Potential bid targets like SSE just, in theory at least, became less valuable as bid targets.