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MARKET COMMENT
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Carburton Street, London -- As part of its sales campaign British Telecommunications (LSE: BT.A) held another press conference this morning. This was a chance for us to put some of our questions directly to Sir Peter Bonfield, the Chief Executive, and Philip Hampton, the Finance Director. The meeting was held in the BT offices in Newgate Street, part of the £2.5b property portfolio that is to be sold. Some of it will be leased back, but the transaction should net a £700m profit overall. The press conference lasted about an hour: Bonfield did most of the talking. The first item was about how the company got itself into this situation in the first place. They said they would have preferred not to have paid so much for the 3G licences, but that in the long run a 20-year franchise for a key business was something BT had to have. The idea back then was to repay the debt by selling part of BT Wireless in an IPO. At that time valuations were high, plenty of money was available and everyone believed in the New Economy. Bonfield and Hampton admitted that things are a bit different now. The change in the business environment has forced the company to take drastic action. Once the rights issue is completed the company will split into two: BT Wireless and Future BT. The demerger will require an EGM and 75% approval by shareholders. BT Wireless will contain all the mobile phone businesses and, crucially, "little or no debt" -- no more than £2b. Even now, after much bearish comment, they are expecting 20% revenue growth in this business. Future BT will have the remaining debt, about £13b to £15b, and will consist of four businesses: the two profitable, but low growth, ones of Retail and Wholesale and the two loss-making, but fast-growing, ones of Openworld and Ignite. A crucial issue for the company in the next few weeks will be gauging the level of take-up of the rights. Typically about 5% of a rights issue is not subscribed and the brokers place this amount, called the "rump", in the market at the end. The situation with BT is unusual in terms of the size of the issue and the size of the shareholder base. Raising £5.9b from 1.8m shareholders could well leave a rump of 10% creating the need to place £600m worth of stock, a fearsome amount in a market already saturated with BT and other telecom shares. To deal with this the management team will be making a four-week roadshow in the US and Europe to support the international tender offer that will be used to place those shares on or about 18 and 19th of June. Bearing in mind that 60% of shareholders have no stockbroker, the rapid education of over a million investors in the details of a rights issue will be a heroic task. But the Fool site and the discussion boards will be an excellent place to go for advice as always.