MARKET COMMENT
BT Wants Your Cash

By Rob Davies
May 10, 2001

In one of the worst kept secrets of the city British Telecommunications (LSE: BT.A) surprised no one today with it sresults, dividend cut and rights issue. The full details, and there are a lot, are posted on the BT message board. But the main features are:

• A net loss of £1,683m for the year to end March 2001
• Net debt stood at £27.9b at that date
• The company plans to raise £5.9b through a rights issue
• For every 10 shares they hold investors will be invited to buy a further 3 at 300p
• The dividend has been suspended for the time being
• BT Wireless (the mobile phone business) will be demerged
• Yell (the Yellow Pages business) will be sold or demerged

The remainder of the business will be renamed Future BT and will consist of a focused European network and retail business.

What this means for you as a shareholder

Shareholders of BT have the right to subscribe to new shares at 300p. Because the shares closed at 568.5p on Wednesday the theoretical ex-rights price is 507p. This is the theoretical price the shares should begin trading at due to the dilutive effect of the rights issue once the shares go 'ex-rights' on May 21.

The issue is not being underwritten, meaning the company is not guaranteed to raise the money. However, by pricing the shares at such a big discount to the current market price it is pretty likely it will get what it wants. That means there is a strong incentive for existing shareholders to take this opportunity to maintain their stake in the company and buy shares at this price.

When shareholders receive a great package of information, either directly or from their broker if they hold the shares through a nominee account, they should resist the temptation to throw it all in the bin because they will need to take action. Basically you have three options:

1. You can take up your rights (either in full or partially)
2. You can sell your rights on the market
3. You can do nothing and let your rights lapse

So you are not forced to take up your rights. If you let your rights lapse they will be sold in the market at the end of the process and you will receive a cheque for the proceeds. All the options will be presented on the information sent out by your broker or BT. You have a number of weeks to make up your mind so there's no need to rush into a decision. No doubt the BT board will be full of discussion about the rights issue so if you're unclear about any aspect of the procedure just ask a question. However, as always, the final decision about what to do with your money should be yours and yours alone.

Where Next?

A full explanation of how rights issues work can be found here. 
BT Discussion Board with full details