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* Drahi lifts stake in BT to 18%
* Drahi says does not intend to make bid for BT
* UK says will act if required to defend critical assets
* BT says to serve all shareholders
* BT shares down 5.5%
(Updates shares)
By Paul Sandle and Kate Holton
LONDON, Dec 14 (Reuters) - Patrick Drahi said on Tuesday he
had increased his stake in BT to 18%, triggering a blunt
response from Britain, which warned it would intervene if
necessary to protect the telecoms group building the country's
critical fibre network.
Drahi, BT's biggest shareholder who has pursued debt-fuelled
deals to buy assets in France, the United States, Portugal and
Israel, said he did not intend to make a full bid for the 16.6
billion pound ($21.9 billion) company.
The Franco-Israeli entrepreneur, who bought 12.1% of BT in
June, said he had engaged constructively with BT's board and
looked forward to continuing that dialogue.
A person familiar with the situation said Drahi notified
BT's new chairman Adam Crozier on Monday after the market had
closed. BT boss Philip Jansen and Crozier met Digital Secretary
Nadine Dorries earlier on Monday.
Shares in BT were down 5.5% at 165 pence in afternoon trade,
following the UK response and the fact that Drahi cannot launch
a hostile takeover for six months by virtue of his statement.
Britain said it was monitoring the situation closely.
"The government is committed to levelling up the country
through digital infrastructure, and will not hesitate to act if
required to protect our critical national telecoms
infrastructure," a spokesperson said.
FIBRE PRIZE
Drahi's move gives him increasing sway at the 175-year-old
former monopoly, without having paid a premium, and positions
him to benefit if BT succeeds in its $20 billion bet that its
national fibre build will deliver long-term rewards.
Former telecoms monopolies are attracting investor interest
based on the potential rewards for their investment in fast
broadband, with Telecom Italia on the receiving end of
an approach from KKR.
Analysts have speculated Drahi could push BT to separate its
networks arm Openreach to achieve a higher valuation shorn of
the risks related to BT's enterprise and consumer units.
A split has been a perennial question for BT, but the ties
between BT Retail and the fibre rollout, a pension deficit of
about 4.6 billion pounds and national security considerations
have weighed against a move.
Britain will strengthen its ability to block takeovers on
national security grounds next month.
Mark Dorff, partner at law firm Brown Rudnick, said a
potential takeover of BT is precisely the sort of transaction
that the government would have the power to stop.
"The bill also has retrospective powers, so there have been
questions about whether the government's power could extend to
blocking future share purchase or even reversing yesterday's
move," he said.
HEAVYWEIGHT INVESTORS
Drahi announced in June he had bought a 12.1% stake in BT,
worth 2.2 billion pounds ($2.9 billion) at the time. The
additional investment would have cost around 1 billion pounds.
He said on Tuesday that he fully supported BT's strategy to
build a full fibre broadband network; "an investment programme
which is so important to both BT and to the UK".
BT, in response to the statement from Drahi's Altice UK,
said it would run the company in the interest of all
shareholders and remains focused on its strategy.
A person familiar with the situation said Drahi had not
demanded a board seat.
BT's second largest shareholder is Deutsche Telekom
. The German company's boss Tim Hoettges said in
September it was weighing options for its 12% stake.
A second source said Altice had not bought shares from
Deutsche.
BT recently bolstered its takeover defences by hiring
boutique advisory group Robey Warshaw. It also added
change-of-control clauses to some of its bonds.
Under British rules, because Drahi said in his statement
that he didn't want to launch a bid, he is now blocked from
making a full takeover for six months. However that commitment
can be set aside with the agreement of the BT board or if a
third party emerges.
(For a factbox on Drahi, click on:)
($1 = 0.7570 pounds)
(Additional reporting by Mathieu Rosemain in Paris; editing by
Guy Faulconbridge, Susan Fenton and Keith Weir)
