BT blocks floating off Cellnet

There has been greater fiscal and monetary tightening in UK, and a rising real exchange rate

BRITISH TELECOM has vetoed plans by Securicor, the security services group, to float off its 40 per cent stake in Cellnet, the mobile phone operator. Robert Brace, BT's finance director, said last week that the telecom giant - which owns the remaining 60 per cent of Cellnet - would oppose any attempt by Securicor to obtain a stock market listing for Cellnet.

The move is certain to revive speculation that BT is gearing up to take full control of Cellnet. BT tried to buy out Securicor's 40 per cent shareholding in 1995, but the deal was blocked by the Department of Trade and Industry. However, observers have long assumed that the current government would not block the deal.

BT is also due to receive a $7bn (pounds 4bn) cash payment in return for its 20 per cent stake in MCI, the US telecom giant whose merger with Worldcom is due to be cleared later this month.

Although the group has asked shareholders for permission to buy back 10 per cent of its shares, Peter Bonfield, BT's chief executive, has hinted that the group has better uses for the cash. The $10bn (pounds 6bn) joint venture with AT&T, unveiled last week, does not require BT to invest any cash.

Securicor had been exploring the possibility of a stock market listing as a way of realising the value of its investment in the group.

Shares in Orange and Vodafone - the two listed mobile phone operators - have soared this year and demand for Cellnet shares would be strong.

By floating its 40 per cent stake Securicor - which is increasingly keen to find an exit from Cellnet - would be able to return the cash to its shareholders.

Analysts calculate that, on a similar valuation to Orange, Cellnet is worth more than pounds 7bn, valuing Securicor's stake at almost pounds 3bn.

BT was thought to have agreed a price of pounds 1.2bn for the stake when the deal was blocked.

Securicor now believes BT would have to offer twice as much to clinch a deal, but observers reckon BT will not pay more than pounds 2bn. This may explain why BT opposed the flotation.

Moreover, BT is not believed to be in any hurry to do a deal. The group has always maintained it would like to own all of Cellnet, if the government would allow it, to fully integrate the mobile operator into its business, offering subscribers a single bill for all their mobile and fixed-line calls.