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Thursday, 10 May, 2001, 11:26 GMT 12:26 UK
To buy or not to buy?

BT is one of the most widely held shares in the UK, and a weighty document explaining the firm's rights issue will be landing on doormats around the country. BBC News Online looks at the dilemma facing shareholders.

What exactly is BT offering its shareholders?

All BT shareholders will be offered the chance to buy an additional three shares for every ten shares in BT that they already own. The new shares will cost 300p, a 47% discount to the 568.5p at which BT shares closed on Wednesday. Offering existing shareholders extra shares at a discount is known as a rights issue, and BT's offer is the biggest ever undertaken by a UK firm.

What's in it for BT?

BT wants to raise money because the company is carrying a large amount of debt (30bn). It has been selling out of its international investments (eg in Japan) in order to raise money to pay off some of this debt, but still needs to do more. If all investors choose to buy the extra shares, BT will receive an extra 5.9bn. This will help it achieve its goal of reducing its debts by 10bn by the end of the year.

What's in it for the shareholder?

The advantage for existing shareholders is that the shares are much cheaper than the current market value offered by stockbrokers or internet sites. A new investor in BT would have had to pay 568.5p for a share on Wednesday, but existing share holders are being given the chance to buy at just 300p.

But is it a "good" investment?

All investments carry some element of risk, with share prices going up as well as down.

Many investors have already seen their savings shrink because of BT's falling share price. At the start of the new millennium, BT shares peaked at 1,513p but are now almost one third of this value.

Your options
Take up your rights and buy the extra shares
Sell your rights
Let rights lapse and be sold on your behalf
This has been due to both general market gloom in the telecom sector and concern over the debt mountain.

But despite the bad performance last year, the telecoms sector is still a high growth industry, with some analysts thinking that the telecoms stocks are due to rebound.

And it is possible that the spate of changes at BT will help it to turn the corner after a bad year, and see a share price recovery.

What do the institutional investors and fund managers think?

BT's largest investors will have already signalled their approval of the rights issue, otherwise it is extremely unlikely to have gone ahead.

Other institutional investors will be reassessing the fundamental value of the business in detail and calculating the benefits of splitting off the wireless section of the business, weighing up the ability of the new management to turn the business around and looking at the technical pattern of the share price.

These investors will often have a limit on the amount of money that they can put into the telecoms sector. So in order to buy more shares, they may have to sell other telecoms stock and reshuffle their overall portfolio.

What's everyone else going to do?

Private investors hold about 17% of the shares.

Some analysts say that asking for several hundred pounds more just before the summer holidays is not likely to go down well among investors who have already seen their savings diminish.

But initial reaction to the rights issue has been largely positive.

If private investors do not bite, around 1bn of stock could be left without a home.

What do independent advisors recommend?

Stockbrokers and independent financial advisers would recommend that private shareholders do not rush into the decision.

There is nothing to be gained by accepting the rights issue immediately rather than waiting until just before the 15 June deadline.

As more details of the restructuring emerge, there will be a lot of analyst coverage in the press. The direction of the share price over the coming weeks will also show what the markets are making of the changes at BT.

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See also:

10 May 01 | Business
BT attacks debt mountain
26 Apr 01 | Business
The rise and fall of BT
10 May 01 | Business
BT posts 2.8bn quarterly loss
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