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Editor Shares magazine, Ross Greenwood
"They had to make the offer attractive enough to shareholders, so they wouldn't dismiss it"
 real 56k

Monday, 21 May, 2001, 14:21 GMT 15:21 UK
Trade starts in BT share rights

Shareholders have until 14 June to make up their minds
Shareholders in British Telecom on Monday began the process of selling or taking up their rights to new shares in the company.

The discounted 5.9bn rights issue - the largest in UK corporate history - is aimed at helping the company reduce its estimated 30bn debts.

Under the plan, shareholders have been handed the rights to buy three new shares, at a discounted 3 apiece, for every 10 they already own.

By mid-afternoon, BT shares had lost 15% to 457.75 pence, reflecting the fact that buyers would no longer have the rights to take up the new shares offer.

Trading in the rights began as reports surfaced of a row over strategy between BT and senior executives at German subsidiary Viag Interkom.

BT later said Viag chief executive Maximilian Ardelt and chief operating officer Hans-Burghardt Ziermann had resigned.

It named Keith Cornell, president of European operations for BT Wireless, as acting chief executive of Viag.

Brisk market

As the first shareholders sold their BT rights, a brisk market developed in the rights.

They were quoted at 178.5p.

Analysts were not expecting all of BT's small investors - who together own about 18% of the company - to take up their rights.

Shareholders have already been hit by the scrapping of dividends for the business year recently ended and the first half of the next year.

And they have seen the value of their investments tumble, with BT shares sliding from about 15 to less than 5.

One analyst estimated one third of BT's 1.7 million small investors would choose to sell or give up their rights.

Shareholders have until 14 June to decide whether to sell, take up or give up those rights.

Good money after bad?

If investors do nothing, their rights to buy the new shares will be sold in the market on their behalf and they will receive the price achieved for them.

Some financial advisers have said small investors could justifiably see taking up the rights as throwing good money after bad although some also view BT, following a deep restructuring, as having good potential for long-term growth.

Those holding the shares for their dividend value are unlikely to want to take up their rights, advisers have said.

Some advisers have recommended that small investors "tail-swallow" - selling some of their rights and using the cash generated to take up their remaining ones.

Analysts said BT was relying on convincing larger, institutional investors to stump up for the new shares.

Finance director Philip Hampton is in the US this week to drum up support for the issue.

Too weak a position

The rights issue forms part of wide-ranging plans to reduce debt and restore credibility at the UK's former telecoms monopoly.

Other moves have included the departure from the chairmanship of long-time boss Sir Iain Vallance and his replacement with BBC chairman Sir Christopher Bland, the demerger of BT Wireless and the sale of assets in Japan, Spain and Malaysia.

Viag Interkom - over which BT gained total control earlier this year - is one of the company's few remaining international operations.

Announcing its results earlier this month, BT said it was taking a 3bn charge because of a disappointing performance at Viag.

Mr Hampton, who is relatively new in his job, is thought to have little liking for Viag - Germany's fourth largest mobile phone operator - which he sees as having too weak a position in an expensive market.

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See also:

11 May 01 | Business
BT hit by double whammy
10 May 01 | Business
BT attacks debt mountain
18 May 01 | Business
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Bland invests in BT
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