Orange has cut its stake in BT in a further sign of falling investor confidence in the UK operator following an accounting scandal in Italy. (See Dodgy Italian Job Savages BT Earnings, Share Price Tanks.)
The French operator took 4% of the company last year when it sold BT Group plc (NYSE: BT; London: BTA) its 50% stake in mobile operator EE, but the sale of 133 million shares will leave it with a share of just 2.66%.
In a share buyback, BT said it would acquire shares worth about £200 million ($254 million) from Orange, representing about half of the shares up for sale.
Orange (NYSE: FTE) also said it had launched an offering of four-year bonds exchangeable into BT shares for about £520 million ($659 million), equaling another third of the French operator's stake.
BT's share price has lost a third of its value since this time last year amid concern about financial misdemeanors at the Italian division of its global services business.
The operator has also warned of difficult conditions in enterprise and UK public sector markets and been forced into a "legal separation" of its Openreach networks business.
That means Openreach will have its own executive board and be managed at arm's length from the rest of BT Group. It has also promised to involve wholesale customers like Sky and TalkTalk in discussions about future network upgrades.
BT has flourished in recent years thanks largely to the strong performance of its consumer business, which has launched high-speed broadband services and made an expensive push into the TV market through heavy spending on rights to screen top-flight soccer matches. (See BT Splashes $1.5B to Beat Sky in Latest Soccer Rights Battle.)
The acquisition of EE last year rounded out the operator's portfolio of communications services, positioning it for the introduction of "quad-play" offerings that bundle fixed, mobile, broadband and TV services in a single bill.
But there may now be some anxiety about the outlook for this business as rising inflation puts pressure on UK consumers.
Moreover, the "legal separation" of Openreach is intended to even out the competitive playing field and give a boost to BT's retail rivals. (See Only BT's Dismemberment Will Sate Rivals.)
Orange's move may prompt further speculation about a sale of BT shares by Germany's Deutsche Telekom, which is currently the UK operator's largest single shareholder with a 12% stake.
Like Orange, Deutsche Telekom acquired its interest by selling one half of the EE business last year and has already voiced concern about the challenges facing BT. (See DT's Biggest BT Bother: Break-Up, Not Brexit.)
Among other things, the German operator appeared unnerved by the implications of last year's Brexit referendum, when UK voters decided to quit the European Union.
Most economists expect Brexit to have damaging consequences for the UK economy and some of the country's biggest employers, including mobile operator Vodafone, have previously said they may relocate to Europe to avoid being shut out of its single market. (See What Hard Brexit Means for Vodafone, BT.)
Last November, Deutsche Telekom AG (NYSE: DT) was reported by Reuters to be considering a sale of its stake in BT once its lock-up agreement expires in August.
The German operator was at the time reported to be waiting to see what kind of Brexit deal the UK would strike with the EU.
UK Prime Minister Theresa May had originally embarked on a "hard" Brexit that would have seen the country leave the single market and impose tighter immigration controls. But the recent general election saw her Conservative Party lose its parliamentary majority and will probably force Brexiteers to moderate their stance.
— Iain Morris, , News Editor, Light Reading