BREAKINGVIEWS-Orange has grounds to lose confidence in BT


Reuters

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Liam ProudLONDON, June 20 (Reuters Breakingviews) - It's better late
than never for Orange <ORAN.PA>. The French telco is cutting its
stake in BT <BT.L>, whose shares have fallen nearly 40 percent
in two years. The timing may not be perfect, but it's preferable
to being exposed to a company that is at the mercy of regulators
and faces increasingly high costs.
    Granted, Orange has stopped short of bailing out completely.
It sold about one-third of its 4 percent stake on Monday at a
slight discount to the closing price. That raised 383 million
pounds, with BT and its employee share ownership trust taking up
a little more than half the offer. Orange will also issue bonds
that will be exchangeable for half of the stake it still owns.
In effect, the French company has sold a third of its stake, is
willing to sell another third, and only wants to hang on to the
remainder.
    BT's performance this year suggests Orange is right to
reduce its exposure. The UK firm's shares have fallen by more
than 21 percent since the start of 2017. A January profit
warning due to an accounting scandal in its Italian division and
a sharp slowdown in UK public-sector business have played their
part.
    So has the mini-onslaught from regulators that BT has faced
since agreeing a compromise in March over the separation of its
networks division, Openreach. Regulator Ofcom fined the company
42 million pounds for breaching contracts with telecoms
providers, and BT said at the time it may have to pay another
300 million pounds in compensation.
    Problems will grow if U.S. media giant Fox <FOXA.O> wins
regulatory approval for its takeover of Sky <SKYB.L>. An
emboldened Sky would make life even more difficult for a company
that has to absorb a near one-third increase in the price of
Champions League rights. Orange is shrewd to hedge against risks
over which BT has no control.
    On Twitter https://twitter.com/liamwardproud

    CONTEXT NEWS
    - French telecoms company Orange said on June 19 it had sold
around one-third of its 4 percent holding in BT, raising around
383 million pounds. The sale reflected a price of 288 pence per
share - a discount of 0.59 percent to the closing price on June
19.
    - Orange also said it planned to issue 517 million pounds of
four-year bonds that would be exchangeable for up to half of its
remaining 2.66 percent stake in BT.
    - If the full exchange rights on the bonds are exercised,
Orange would retain a 1.33 percent stake in BT.
    - The proceeds of the transactions will be used for "general
corporate purposes", Orange said.
    - BT shares were down 0.3 percent to 289 pence at 0935 BST
on June 20.
    - For previous columns by the author, Reuters customers can
click on [PROUD/]
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
France'sOrange says it could get $1.15 bln by cutting stake in
BT    [nL8N1JG5AD]
Orange statement    https://www.orange.com/en/Press-Room/press-releases-2017/Orange-reduces-its-stake-in-BT-and-secures-financing-at-a-negative-interest-rate
BT statement     http://tools.morningstar.co.uk/tsweu6nqxu/globaldocuments/document/rnsNewsItem.aspx?DocumentId=384822627855362
BREAKINGVIEWS-BT valuation gap will outlast post-scandal reset
 [nL8N1ID2W7]
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Swaha Pattanaik and Bob Cervi)
 ((liam.proud@thomsonreuters.com; Reuters Messaging:
liam.ward-proud.thomsonreuters.com@reuters.net))

Keywords: ORANGE BT GROUP/BREAKINGVIEWS



This article appears in: World Markets , Stocks , Economy , Technology
Referenced Symbols: BT , FOXA , ORAN , SKYB


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