With the FTSE 100 taking a nosedive since last Friday, investors are probably pleased to see the BT Group (LSE:BT-A) share price on the rise. The stock is up 8% at the time of writing, pushing its 12- month performance to an impressive 36% return. So, what’s behind this sudden momentum? And should I be considering this business for my portfolio?
The surging BT share price
When a stock experiences a rapid jump, it’s usually due to an encouraging earnings report. But in the case of BT, that’s not what’s happening. In fact, the company itself hasn’t made any announcements today. So, why are investors suddenly bullish on this business?
Earlier this morning, The Economic Times reported that the Indian telecommunications conglomerate Reliance Industries is rumoured to be considering making a bid for the UK business. The prospect of any acquisition is enough to get investors excited. But given this company recently tried to acquire a Dutch unit of T-Mobile only two months ago, its international ambitions have given a lot of credibility to this rumour.
If the deal were to go through, it would be the largest outbound acquisition of any Indian business. After all, BT Group does have a £15bn market capitalisation. What’s more, the Economic Times report also indicated the possibility of a partnership between the two firms to roll out fibre across five million homes.
With that in mind, I’m not surprised to see the BT share price erupt this morning. But have investors got ahead of themselves?
Taking a step back
As exciting as the prospect of an acquisition can be, the market may be getting a bit too excited. There is currently no confirmation from either party of any such deal taking place. The sources quoted by The Economic Times report stated that “these are early-stage deliberations and may not eventually fructify into a transaction”. And it’s not clear whether any discussion has taken place between the executive teams. In other words, this rumour might be just that – a rumour. If nothing comes of it, then the BT share price could quickly lose today’s gains.
But let’s assume the companies are, in fact, negotiating a deal. Would that entice me to buy shares? No. Beyond not knowing what the price of this deal may eventually end up being, there’s no guarantee that regulators would approve it. BT owns and maintains the UK’s telecommunication infrastructure through its Openreach division. But it also holds contracts with the British government and military. Therefore, I wouldn’t be surprised if a takeover deal ended up being blocked on national security concerns.
The bottom line
I’ve explored BT Group before. And my conclusion was that the business is making good progress in repairing its balance sheet, but it still has a long way to go. Today’s prospect of a potential buyout hasn’t changed that thesis. Therefore, I’m still keeping this stock on my watchlist.
