The board of BT would be asleep on the job if it wasn’t contemplating what it would do if a bidder showed up. The share price has plunged by more than a third since the dividend was axed in March and, with a market value of £10bn, the company can no longer be considered out of reach for private equity’s leveraged buyout brigade. Hiring some big brains from Goldman Sachs as expensive advisers-cum-bouncers, as BT has done, is standard preparatory stuff.
Yet ministers would also be well-advised to engage in some just-in-case thinking. Talk about a bid for BT is only loose, but it would be useful to stamp on it. A leveraged buyout would be a terrible development for the UK’s hopes of accelerating the rollout of fast-fibre broadband – a programme that probably requires BT to lay about two-thirds of the network.
Prodding BT to sound enthusiastic about the task has been hard enough over the years. Regulatory peace of a sort only emerged when chief executive Philip Jansen upped his rollout target from 15m to 20m premises by the “mid to late 2020s”.
Something had to give to fund that £12bn commitment, especially when one considers the drag from Covid plus a pension fund showing a deficit of almost £10bn. It was the dividend. It was cut to zero in March for 18 months and will only return at half the old rate. Cue the fall in the share price since then from 160p to as low as 100p.
A private equity bidder might deliver a quick fix for investors, but surely wouldn’t offer much for customers or the country. Aside from the pension deficit, BT already has £11.5bn of debt. Adding a layer of takeover borrowings on top would make the investment commitment extremely fragile. We’d be back in the world of acrimonious argy-bargy with regulator Ofcom and Westminster in no time.
Ministers should certainly be alarmed by reports that Macquarie, the Australian investment house, is having a look at Openreach, the broadband subsidiary. Macquarie’s last big punt on British infrastructure was Thames Water and can only be called a success from the point of view of the financial engineers. A decade of under-investment and over-distribution of dividends helped to create a crisis of public confidence in the entire regulated water industry.
Rapid rollout of fast-fibre, one assumes, is still one of the government’s “levelling up” priorities. If so, “hands off BT” would be a useful message to send.
Pearson pays dearly for Disney character
You can’t recruit a former Walt Disney high-flyer unless you give him a Mickey Mouse pay package. That was the gist of Pearson’s explanation for why Andy Bird requires a “co-investment opportunity” to become chief executive of the educational publisher.
The head of Disney’s international operations until 2018 will buy Pearson shares worth $3.75m (£2.9m) but the company will then give him stock worth $9.4m over three years provided a few unremarkable performance conditions are met.
That, note, is on top of a regular pay package that is a few notches above predecessor John Fallon’s. Bird will get a $1.25m salary plus a possible $6.25m in incentives (a maximum annual bonus worth 200% of salary plus a 300% annual long-term incentive). Those numbers are large for a company of Pearson’s shrunken status – by market capitalisation, it currently sits in 92nd place in the FTSE 100 index.
After seven profit warnings in seven years under Fallon, shareholders are probably sufficiently desperate to try the “superstar CEO” approach. Bird is British but made his name at Disney and is considered a whizz in digital transition, the quality Pearson still seeks.
All the same, soft ‘“co-investment” packages, designed to close the gap with mega-bucks boardroom arrangements in the US, sound like an inflationary turn for the worse for the UK. Bird may have earned $10m-plus a year during his Disney days, but he’s not working there now.
Light rap for Rio Tinto outrage
“As chief executive, Jean-Sébastien Jacques is ultimately responsible for the group’s cultural heritage management,” said miner Rio Tinto’s internal report on Monday on the “systemic failures” that led the company to blow up two 46,000-year-old Aboriginal rock shelters in the Pilbara region of Western Australia.
So he’s resigned, then? Of course not. Jacques has been docked £2.7m in bonuses, which sounds a lot but requires context. He has earned £17m during his four years in charge of Rio Tinto, including £5.8m last year.
Even deaths of workers rarely force resignations at big mining firms, so perhaps we shouldn’t be surprised by the lack of a resignation. But if Rio meant what it says about “ultimately responsible”, Jacques would go.
