Private Equity Rummages in Europe’s Telco Bargain Bin

Private Equity Rummages in Europe’s Telco Bargain Bin

The telecoms sector is proving a rich hunting ground for bidders and bankers. Surely stock-market investors can put up more resistance.

Reliance Industries, the Indian conglomerate led by billionaire Mukesh Ambani, denied a report it was mulling an offer for BT Group Plc on Monday, but the UK telco remains the subject of speculation after the Mail on Sunday said private-equity suitors were crunching the numbers on a possible bid for its Openreach broadband unit. Billionaire telecoms entrepreneur Patrick Drahi amassed a 12% stake in BT earlier this year.

Meanwhile, US buyout firm KKR & Co. has proposed a deal to buy Telecom Italia SpA, having made a failed attempt at another national icon, Royal KPN NV of the Netherlands.

Private buyers are enticed by the prospect of steady cash payouts once broadband networks are upgraded, whereas that long-term potential hasn’t been reflected in current share prices. In fact, investors have punished listed telecom firms for spending on a rosier future.

Vodafone Group Plc shares tumbled in May after the company upped capital expenditure plans. Iliad SA’s buyout came after the stock sank on the announcement of higher capex. Conversely, BT rallied in November when it said it wouldn’t spend as much as previously