BT pays £225m to avoid court over Italian accounting scandal
BT HAS paid £225m to avoid a court battle with Deutsche Telekom and Orange over the accounting scandal in Italy that has battered its finances.
The German and French telecoms giants are among BT’S biggest shareholders, having accepted shares in part exchange for the mobile operator EE last year.
They watched on in January as revelations of complex fraud prompted a plunge in BT’S share price. The fraud blew a £500m hole in BT’S cashflow and caused a £571m writedown, triggering the company’s worst ever day on the stock market.
The disaster could have been a basis for legal action by Deutsche Telekom and Orange under warranties included in the £12.5bn EE takeover agreement.
Gavin Patterson, the BT chief executive, said the settlement with Deutsche Telekom and Orange was “clearly disappointing” but necessary to avoid legal action. Full-year financial guidance was not affected, Mr Patterson added. Mr Patterson said: “It has only very recently come up. If a claim was going to be made, it had to be made by today.” BT’S shares fell 1.8pc to close at 310.4p.
The company also announced that the head of its consumer business is to exit the company as part of a major shake-up that will merge the unit with the mobile operator EE. John Petter, a longtime ally of Mr Patterson, is stepping down after four years in charge of BT Consumer. Mr Petter has been with BT for 13 years and previously worked with Mr Patterson at the cable operator Telewest, and Procter & Gamble. He played a key role in the development of BT Sport, with the company’s first raid on the Premier League rights auction masterminded from his Battersea kitchen to maintain secrecy.
His responsibilities for home broadband and phone services, BT Sport and TV will be assumed by Marc Allera, the EE chief executive, who will lead integration of the mobile operator with BT Consumer from next year. The two lines of business will continue separately until then and separate brands will be maintained after the merger.
The merger is among the first results of Project Novator, a restructuring effort meant to simplify and streamline BT in the wake of a series of costly blunders, including the major accounting scandal in Italy.
The Global Services division behind that failure is likely to be brought together with BT Business and Public Sector later in the year, according to company sources. BT revealed Mr Petter’s departure alongside its first quarter financial results. The latest blow over Italy added to pressure on profits in the first quarter, which collapsed 42pc to £418m as BT also counted the cost of a £342m bill in fines and compensation for abuses at its network subsidiary Openreach.
Higher operating costs also weighed on BT’S bottom line. A sharp rise in the business rates due on its network, higher pension top-up payments and more expensive Premier League rights all contributed to an 8pc increase on last year.