BT to spin off MMO2

The UK telecom group BT will on Monday formally demerge its mobile phone business, MMO2, and float its shares on the London Stock Exchange.

Shares in the new company have already been pre-traded for a week, experiencing a rollercoaster ride, initially rising 15% before slipping back 7% on Friday.

The markets valued the company at £6.7bn ahead of the weekend.

BT's own share price has been on an even more spectacular rollercoaster ride over the past five years which at some stage sent the company's market value to a peak of 1,358.5p, before diving to a trough of 342p.

On Friday, the stock ended up 10% on the week at 356p.

The company that will remain when MM02 is stripped, BT Group, was also pre-traded.

This company rose 2.6%, valuing the company at £23.7bn.

Mobile menace

BT's mobile phone business, formerly known as BT Cellnet, must take a substantial portion of the blame for both the boom and the subsequent collapse of the company's share price.

The sell-off of the very unit that caused the chaos has left many shareholders with the option of either selling their MMO2 shares or to stick with the new, and potentially risky shares.

All shareholders have been allocated one MMO2 share for each BT share they hold.

Ahead of the weekend, there was widespread speculation that MMO2 would be an instant takeover target, not least because it is the sixth largest mobile phone firm in Europe in terms of customers.

Both BT Group and MMO2 will be included in the FTSE 100 index of leading UK companies.

Evaluation

Several union members and private shareholders have poured scorn on the spin-off.

And analysts paint a mixed picture of its future fortunes.

Several of them have given the demerger the thumbs-up.

"We see the demerger of MMO2 from BT as a positive step, despite our reservations about the overall group valuation," said Goldman Sachs in a recent research note.

Daiwa Institute of Research and Schroder Salomon Smith Barney were also fairly optimistic, but Teather & Greenwood's analyst Kevin Fogarty's advice was simple: "Sell".