LONDON, 27 October — British Telecom is facing a potential showdown with the city over the proposed sale of its 2.5 billion pound share in French telecoms business, Cegetel.
The former state monopoly operator has agreed to sell its 26 percent stake to Vodafone, marking the end of BT’s foray in the international telecoms market. A BT spokeswoman said that the cash would be used to reduce the company’s 13.4 billion pound net debt to below 10 billion pound by 2005.
But some investors and analysts want BT to return the cash to shareholders through a higher dividend. Alternatively, they would like BT to buy back some of its own stock, which would enhance earnings.
One shareholder, who asked to remain anonymous, said: “There has been a lot of pain with BT and very little pleasure. Distributing cash would help sweeten the pill.” Despite the company’s back-to-basics approach under new Chief Executive Ben Verwaayen, its shares have this year fallen 27 percent. This compares to a 22 percent decline in the FTSE 100 index.
According to investment bank Investec Securities, BT could afford to increase its estimated dividend of 5.3 pence-a-share for 2003 to 6.5 pence. This year BT resumed dividend payments offering shareholders 2 pence-a-share. Payments were suspended in 2001 while BT underwent a restructure in an attempt to reduce its then 30 billion pound debt mountain. Before that, BT’s shareholders were treated to bumper dividends with 19.6 pence in 2000 and 18.8 pence in 1999.
On top of an increase in dividend, Investec believes that the company could embark on a one billion pound share buyback, that would enhance earnings per share by four percent. However, there could be a delay to the sale of BT’s stake in Cegetel. Vodafone wants to seize control of Cegetel because the company owns French mobile operator SFR. As well as agreeing to pay for BT’s stake Vodafone has also offered to buy a 15 percent holding from America’s SBC. The remaining shareholder in Cegetel is Vivendi which also wants to get its hands on SFR. The French media company has until Nov. 10 to make a counter offer. But in a bid to gain more time, Vivendi last week served a writ on Vodafone to extend the deadline. (The Independent)
