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BT – Tesla-hating US hedgie taking a stake to push for break up?

By Nigel Somerville | Tuesday 16 October 2018

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I note a report in the Times which tells us that US hedgie Greenlight Capital has been building a stake in BT (BT.A) with a view to pushing for the sale of Openreach. ShareProphets readers may also be interested to note that Greenlight and its head honcho Mr David Einhorn have been in the news recently as a bear of Tesla – so since it short a stock I don’t like and long one that I do obviously I take the view that this is a genius outfit!

Of course, Einhorn had – until recently – been taking a bit of a battering over its bear position in Tesla, and in July it reported pretty eye-watering losses (not just in relation to Tesla) so it certainly doesn’t follow the market but it does ruffle feathers. But I’ll bet returns have been boosted recently in the wake of the SEC fining both Tesla and Musk, and I can’t help the feeling that there is more to come on that score.

But back to BT. According to the Times the stake is believed to be below 3% but with BT shares having rallied during the market crash and rallied further this week (they are now just over 244p, against 230p just six sessions back I would not be surprised if we see a TR-1 from Greenlight over the coming days.

Back in May I wondered (HERE) whether BT might come under attack from activist funds looking to break the company up on the basis that the value of the sum of the parts somewhat outweighed that of the whole, rather like Telecom Italia had done.

At the time, Bloomberg had reported that BT had received expressions of interest for its Openreach division, and that analysts had a valuation for the division of up to $33 billion. That, I suggest, would amongst other things leave BT minus a pension deficit. I also had noted some conflicting statements from BT which suggested it might be up for sales (even though the outgoing CEO wanted to keep the assets together).

So is it game on? Well, I’ve no idea but it does seem to suggest that BT’s valuation may be a bit too low, and if it remains so then I wonder whether Greenlight (and perhaps a few allies) might eventually be successful.

One to watch, then – it could be an interesting ride ahead and Greenlight seems to have struck at an opportune time when BT is minus a CEO.

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