the times | Friday May 27 2022 37Business
Asda has said that British households
have already encountered the biggest
fall in disposable income since the
financial crisis alongside reporting a
slump in sales over its first quarter.
The supermarket’s latest income
tracker said average household disposa-
ble income dropped by £40.38 per week
in April, the largest fall since its tracker
was created in 2008. The rise in living
costs, including higher energy prices,
has seen spending cash fall to £205 a
week, the lowest amount in four years.
Asda separately reported a 9.2 per
cent fall in sales to £4.64 billion over the
three months to March 31 as it facedAsda chief laments consumer crisis
comparisons with the previous year’s
third lockdown when more food was
bought to eat at home.
Lord Rose of Monewden, Asda’s
chairman, said the cost-of-living crisis
had prompted the grocer to invest more
than £90 million in expanding a new
Just Essentials value range and cutting
the price of 100 lines. “It is up to shop-
keepers to help consumers,” he said.
In the last recession the discount su-
permarkets had just 5 per cent of the
food market but rapidly expanded their
store estate. They now have a 15 per
cent share. Rose said larger super-
markets still offered more choice and
home deliveries, unlike Aldi and Lidl.
He said that food retailers had beenfacing an alphabet of challenges. “We
had B for Brexit, C for Covid and now D
for doom” but added that the industry
was “resilient, tough and we will get
through this. That is why we are invest-
ing in the business.”
Rose said that Asda was “still the
price leader” amid claims that the com-
pany had become less competitive
since its £6.8 billion takeover by the Issa
brothers and TDR Capital.
Mohsin Issa, Asda’s co-owner, said:
“Asda has a strong heritage of investing
in price and customers can trust us to be
on their side when they need it the
most. We are investing in helping our
shoppers manage the challenges of the
here and now.”Ashley Armstrong Retail EditorNot quite a ringing
endorsement
C
rossed wires can cause big
problems in the telecoms
biz. But at least business
secretary Kwasi Kwarteng
has come over loud and
clear: Patrick Drahi, BT’s 18 per cent
owner, can hang up on any idea of
bidding for the group.
Maybe the secretive French
businessman had worked that out
already. When his Altice outfit
raised its stake from 12.1 per cent in
December, a “government
spokesman” was up with a response
at 7.25am: a heroic effort, given all
the parties going on at the time. The
message? That ministers were
“monitoring the situation carefully”
and would “not hesitate to act”.
Drahi smoothed that he did “not
intend to make an offer for BT”,
while remaining “fully supportive of
their strategy” — not least the
£15 billion spend by chief executive
Philip Jansen to bring full-fibre
broadband to 25 million homes by
December 2026. But Kwarteng is
clearly taking no chances. He’s just
used the National Security and
Investment Act, in force since only
January 4, to “call in” Drahi’s
purchase of the extra 6 per cent
holding, with the government
underlining its new powers to
“scrutinise and — if necessary —
intervene in qualifying acquisitions”.
The move sent BT shares down
2 per cent to 185½p, while raising a
host of questions. The first: why
now? Kwarteng could have acted
any time since January. But, under
Takeover Panel rules, Drahi has
only ruled out a bid for six months,
a pledge that expires on June 14. So,
does the government really think
he’s readying a bid for BT? Is this
just some unsubtle warning shot
against him lifting his stake beyond
18 per cent or demanding a board
seat at BT’s annual meeting on July
14? Or is Kwarteng considering
something else: using the new law to
force Drahi to sell down his holding
to no more than his initial 12.1 per
cent, roughly the same as Deutsche
Telekom’s interest in BT?
Kwarteng probably doesn’t know
himself yet. But HSBC’s sales team
told clients: “The government is
signalling to Patrick Drahi that he is
not a welcome owner of UK
strategic infrastructure.” Analysts at
Berenberg noted how Kwarteng’s
move creates a share price overhang
over “whether Drahi will be allowed
to retain his ownership”.
There are risks with Kwarteng’s
approach should it prove too heavy-
handed and deter foreign strategic
investors in key industries, not least
when the new security law spans 17
sectors. Drahi is not known for
being a passive investor. But there’s
a big question over whether he has
the firepower to buy BT anyway —
it’s valued at almost £18.5 billion.
And, while it may make sense to
limit his stakebuilding to sub-20 per
cent, someone has to put up the
capital for BT’s fibre roll-out.
Kwarteng must be careful not to
ring too many alarm bells here.From Gray to green
M
ore proof that a Sue Gray
report refreshes the parts
other reports cannot reach.Was it really only a week ago that
Boris Johnson was whipping Tory
MPs to vote down Labour’s proposal
for a windfall tax? Now look:
another U-turn from the No 10
party animal, all oiled up over the
“energy profits levy”. Or a windfall
tax, as it’s popularly known.
Doesn’t the PM understand the
effect of all this flip-flopping on
investors, the ones he needs to fund
Britain’s transition to net zero by
2050, costing £1 trillion-plus? All
they see is a government ready to
inflict random taxes on business —
possibly out to 2025 — to get it
round the next corner. The result?
They’ll demand higher returns to
compensate: a big number on that
scale of investment.
Anway, Rishi Sunak’s levy slaps
an “additional 25 per cent tax on
UK oil and gas profits”, as the
Treasury’s own factsheet put it,
lifting the total rate to 65 per cent.
But the puzzler was the related
“investment allowance”, which the
chancellor said would allow
companies to recover 91p of “every
£1 of extra investment”. If that’s the
case, how does he know his tax will
raise £5 billion? To boot, why is he
merely incentivising investment in
“UK extraction”?
Yes, extra drilling in the North
Sea may do its bit for energy
security. But the flaw in Sunak’s
scheme is that it does nothing to
incentivise investment in the green
energy projects key to our net zero
target. True, it makes for a simpler
tax. But it skews capital allocation.
Don’t BP or Shell, say, now have
more incentive to focus on North
Sea oil and gas rather than wind
farms, carbon capture or hydrogen?
As PwC put it, “companies will
need to review their capital
investment plans” with the
allowance “limited to expenditure
on oil and gas projects, rather than
incentivising investment in energy
transition projects”. On top, Sunak’s
left electricity generators hanging
over whether they’ll also be hit with
a tax. It’s an odd way to get lots of
nice green projects off the ground.Stay on the bus
A
ride with FirstGroup used to
mean only one thing —
ending up in a ditch with a
bunch of squabbling investors. It
was only in July 2020 that the
shares stood at 32p. But since then,
chairman David Martin has made a
messy reverse from America. And
now? He’s got a proposed bid from
I Squared Capital, dangling up to
163.6p a share, or £1.22 billion.
The main problem? Only 118p a
share in cash is guaranteed; the rest
is a “contingent right to up to a
further 45.6p”. It helps explain why
the shares rose only 9 per cent to
129¾p. Martin is already hoping to
return £417 million from earnouts
on its First Transit sale, the
Greyhound property portfolio and
UK pension releases, worth around
55p a share. So it’s hard to spot a big
premium from I Squared. Still, its
tilt could yet flush out a rival bidder
— National Express maybe? Don’t
disembark yet.[email protected]business commentary Alistair Osborne
tycoon’s plans for BT
Profile
A
lways known as a fast
mover, Drahi proposed to
his future wife Lina just
an hour after meeting her
at a party in Paris in the
1980s (David Byers writes). They
now have four children.
The businessman’s extraordinary
career has been characterised by the
same mixture of impulsiveness and
ruthlessness. The 58-year-old would
buy undervalued assets and then
slash costs, striking fear into rank-
and-file staff in France, home to
some of the strictest labour laws in
the western world. His reputation
earned him the nickname “the cost
killer” by French trade unions.
The son of two maths teachers,
Drahi was born in Casablanca in- His parents moved to France
when he was 15 and he graduated
with an engineering degree from the
École Polytechnique in 1988. He
began his career at Philips before
founding a TV cable firm, which he
grew by persuading mayors in small
French towns to allow him to dig up
their streets.
He sold the business to cable giant
UPC, owned by John Malone, who
described Drahi as a genius. After a
spell working for UPC, Drahi cashed
in his shares for €40 million just
before the dotcom bubble burst.
The cash helped Drahi — who has
French, Israeli and Portuguese
citizenship — to found Altice in - The next 20 years saw a global
acquisition spree that has left him
with a fortune of £5.3 billion.
Through a mixture of audacious
acquisitions and highly leveraged
deals he has built Altice into a
telecoms, media, entertainment and
advertising group operating in the
United States, France, Portugal and
Israel. It has 40 million customers.
High-profile acquisitions include
SFR, the French mobile company,
for €17 billion; a 70 per cent stake in
Suddenlink, the US cable operator,
for $9 billion; and New York-based
Cablevision for $17.7 billion. In 2018
he spun off Altice’s majority
shareholding in its US arm amid
concerns over the parent’s debt.
In 2019 Drahi acquired Sotheby’s
for $3.7 billion. He had the stated
aim of cutting $66 million in costs.
A subsequent clear-out saw up to 30
senior executives laid off from the
auction house that autumn.
He then borrowed heavily against
a mortgage taken on Sotheby’s
London HQ — funds he is believed
to have used to fuel his secret
stakebuilding spree in BT.
Source: Refinitiv050100150200250300350p2021 2022May 13, 2021
BT announces an
acceleration of its
expansion of
Openreach’s full-fibre
broadband
infrastructureJune 10, 2021
Patrick Drahi, the
founder of the French
group Altice, emerges
with a 12.1 per cent
stake in BT, making him
BT’s largest shareholderNovember 4, 2021
BT cuts its peak
spending forecast
and opts to retain
full control of its
full-fibre
broadband
investment plansDecember 14, 2021
Altice raises its voting
rights from 12.1 per
cent to 18 per cent,
prompting the
government to warn it
would "not hesitate to
act if required to
protect our critical
national telecoms
infrastructure"May 25, 2022
Government notifies
BT it is exercising its
"call-in" power under
the National Security
and Investment ActWhy has the government acted?
BT has close relationships with
Britain’s security agencies and
carries sensitive traffic. It handles
calls to the emergency services and
cybersecurity for the government. BT
is also central to Tory manifesto
commitments to expand full-fibre
broadband, levelling up the country
and supporting the digital economy.
And why now?
The timing has surprised some in the
City and industry as the government
has held the new powers since
January 4, while Altice raised its
investment to 18 per cent as long ago
as December. The act sets a
mandatory notification obligation
when a shareholding crosses a
25 per cent threshold, analysts havenoted, which Altice has not passed,
but a review can be triggered if an
increase in a shareholding is deemed
to provide “material influence”. A six-
month self-imposed period under
City takeover rules preventing Altice
from launching a bid for BT also
expires on June 14, which may have
prompted the government to move.
What might the government
conclude?
It can impose conditions on a
potential acquisition and even block
a bid, meaning the review could
force or encourage Altice to offload
its stake. Alternatively — but unlikely
— the government could in effect
clear Altice to raise its control. While
the review is conducted it is likely to
halt any further stakebuilding.