Remember trade deficits? They don’t talk about them anymore like they used to do, even if the bottom line is a deficit means you are losing your relative wealth to those with a surplus, you can still get richer if you run a trade deficit.
Yet after decades of deficit the gap between a country like the U.K., and for that matter the U.S., and the rest of the world narrows and ultimately the surplus countries end up richer and come calling to buy up your assets. After decade after decade of trade deficits, the U.K. is being hollowed out. If you want a good example of this hollowing, simply look at the prime real estate in London. It is owned by the overseas rich. Look abroad and you will not see such prime real estate owned by the British. How many U.K. companies get snapped up by overseas corporations? When was the last time a U.K. company took over a big or even a medium sized foreign company?
That’s economics for you. You simple can’t have a trade deficit and not get relatively poorer.
We Brits can weep, but we can also make money while the country slips under the economic waves. The U.K. stock market is full of ridiculously low valued shares, begging to be owned by much higher valued companies in the same business. U.S. companies, for instance, can get a 100% uplift from the sales and profits of U.K. corporates. All they have to do is nip in and do the do.
A good example is BT, which is ‘not’ being bought by Altice, all the while they have gone from a 11% holding, to 18% and now 24%.
Altice is the vehicle of Patrick Draghi, a brilliant billionaire dealmaker.
Altice have again said, they do not wish to bid. The exact words are “it has restated its position to the board of BT that it doesn’t plan to make an offer for the company and will be bound by that statement under U.K. takeover rules.”
This means they will not bid under the U.K. takeover rules, which can be interpreted as they will not make a bid in the next six months. This of course can be cynically translated into Altice will bid sometime after six months IF…
So the big “if” is, if it will be allowed to bid by the U.K. government who will consider BT strategic on a number of levels and also politically charged on many levels, too. The government investigated this situation when Altice hit 18% and didn’t do anything to say “stop,” so I would guess this process repeats as Altice grows its stake, until the timing is right to gobble up the whole enterprise.
Alternatively if you are a U.S. company, you might like a company like Altice to build up a 25%-30% stake to then buy for a fat premium as you swoop. BT is half price compared to U.S. telco so why not put together a transaction!
So let’s look at the chart:
I’ve ringed where I would guess it should end up on a bid.
Meanwhile BT is paying a 4.23% dividend that is probably about the interest Altice is paying on the money if it has borrowed it to build a stake.
The lamentable thing about the U.K. stock market and why no new big company wants to list there, is that it can value the bulk of the U.K.’s telco infrastructure with £21 billion in sales at £14 billion, where elsewhere you would get at least 1, not 0.6 and a massive tech might even get 10!
While this is bad news for the U.K. this is good news for the investor who can buy in at this price and watch a predator pick up these cheap assets at a 30%-50% premium. BT sold out at 200p or 220p? What a surprise that won’t be. I give it about a year. As you can imagine I own a lot of BT.
If the government demurs and says “no” to a takeover then we will still be reaping a nice dividend, then at some point the inevitable will happen and someone who can get the thumbs up will come along and away will go BT to a foreign owner or perhaps as a long shot the share and perhaps the whole FTSE will reprice.
Meanwhile trade deficits will grind on and the outcome is inevitable, as countries getting richer through trade buy up the assets of the countries paying away their assets as they get relatively poorer.
Disclosure: I own BT.
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