In a dramatic move to bolster its value and trim debt, British Telecom said last week it would spin off its wireless unit, BT Wireless, as a separately traded company, and temporarily suspend dividend payments. The telecom giant said it expects the moves to save about $8 billion and allow it to meet its debt reduction target of $14 billion by the end of the year.
The wireless unit would include all of the company’s wireless assets, including BT Cellnet in the United Kingdom, Manx Telecom in the Isle of Man, Viag Telekom in Germany, Esat Digifone in Ireland and Telfort in The Netherlands. BT Wireless would also include Genie, the carrier’s wireless portal service.
Sir Peter Bonfield, chief executive of BT, told a news conference the company has accepted the realities of the marketplace in its decision to sell off its wireless assets.
“These actions will provide shareholders with ownership of two strong, tightly focused, independent businesses, one high growth and the other well established and cash generative,” said Sir Bonfield. “We have tightened our geographic focus on the U.K. and Western European growth markets and our disposal program is going well and according to plan.”
“They tried to take steps to alleviate their debt situation by unloading their stakes in other carriers, but it was not enough,” said Jake Saunders, European director for the Strategis Group. “BT has been used to being a blue-chip on the market, so I am sure the decision was not easy. BT went to great lengths to build BT CellNet, and now they are taking a step back.”
BT Wireless is expected to take over the third-generation wireless licenses BT has won in Europe, but little of the $40 billion it spent in obtaining the licenses. Some have noted those licenses might make BT Wireless a potential target for a takeover by a European rival. SG Securities said Telefonica Moviles or Telecom Italia are both potential merger candidates for BT Wireless.
BT has denied it is “fattening” up BT Wireless for a possible takeover bid.
Strategis Group’s Saunders said he suspects the spinoff of BT Wireless might actually make it easier for the carrier to launch its 3G network since it could use the investments to help finance the infrastructure buildout.
“There was not doom and gloom that 3G services were not going to happen,” Saunders said. “This just makes it potentially easier for those services to be introduced.”
In addition to spinning off its wireless assets, BT said it would “de-merge” Future BT to focus on delivering broadband and Internet services to European customers. The company said it has not ruled out plans for a further breakup of its core businesses remaining after the current spinoff.
BT’s disposal program included the company’s recent selling of its stake in Japan Telecom and its J-Phone Group and Spain’s Airtel to British rival Vodafone Group plc earlier this month for approximately $6.8 billion. BT also said it had agreed in principle to sell its interest in Malaysia’s Maxis Communications for $496 million and was selling its headquarters in London.
BT is also considering a proposal to sell or spinoff its Yell unit, which specializes in international directories and e-commerce business, and is in talks with AT&T Corp. over the future of their Concert joint venture. BT said those discussions include the sale of Concert to AT&T, the possible narrowing of the division’s business scope or the termination of the joint venture.
To entice current BT investors, the company said it would sell shares of BT Wireless at a 47-percent discount compared with the price of BT ordinary shares. The carrier said the decision to sell a stake in BT Wireless to current shareholders instead of through an initial public offering was made due to the current weakness in the IPO market and the possible dilution of current shareholder value. BT said last year it was thinking of selling off 25 percent of its wireless division through an IPO, but eventually scrapped those plans.
BT’s move is similar to AT&T’s plans last year to spin off its wireless division to “unlock its full potential value.” AT&T eventually spun off AT&T Wireless last May as a tracking stock, but quickly saw its value fall from $35 per share to less than $20 per share today.
Verizon Communications Inc. and Cingular Wireless also announced plans for IPOs of their wireless offerings, but have postponed them due to poor market conditions.
BT’s suspended dividend payment will include the year ended March 31, and that future dividend policy would be decided by the individual listed company, though BT’s board expects that Future BT will recommend a final dividend payment for the year ending March 31, 2002.
BT said it expects the spinoff of BT Wireless and Future BT to take place later this year.
