BT picks up balance of Cellnet for pounds 3.15bn

BUMPER VALUATIONS in the telecoms sector were further validated yesterday when British Telecom ended years of on-and-off talks by agreeing to pay Securicor pounds 3.15bn for the 40 per cent of the mobile phone network Cellnet that it did not already own.

Securicor's total investment since Cellnet was launched in 1983 was pounds 4m. The company's expansion had been funded by debt, which has been repaid. BT had tried to buy out the stake in 1995, but was blocked by the government.

Sources said talks about a sale were resumed two weeks ago, apparently at the instigation of Securicor.

BT, anxious to avoid overpaying, has threatened to bid for a third-generation mobile licence on its own, capping Cellnet's growth potential and value. It is understood that Securicor's three Cellnet directors, led by managing director Roger Wiggs, would have been forced into legal action had BT taken that course.

The acquisition places BT in a position to capture the full value that has accrued to assets in the mobile phones sector.

Some analysts question the sale price, which values Cellnet, the number two mobile operator with more than 5 million customers, at about pounds 7.9bn. This compares with the pounds 11.7bn market capitalisation of Orange, the third- largest operator.

"I think BT struck a good price," said Jim McCafferty, an analyst with SG Securities. "It means their UK cellular business is being valued at less than pounds 8bn, lower than the valuation for Orange, which has just under half the customer base of Cellnet."

Investors agreed, and BT shares added 66p to 1,117p. Securicor also made gains, rising 39p to 583.5p on market-leading volume of 28.4 million shares.

Securicor said its major shareholders, which include Mercury Asset Management with 6 per cent and Standard Life Assurance, were supportive of the transaction.

Cellnet made pre-tax profits of pounds 118m in the year to March on net assets of pounds 431m.

BT will amortise pounds 3bn in goodwill charges at pounds 150m a year for 20 years. That is expected to dilute earnings per share by 2.3p in the year to March 2001. The transaction will see BT dip into its bank reserves to pay Securicor shareholders in cash or a loan note alternative, a move designed to minimise tax liabilities. The deal is due to close by November.

The consolidation of Cellnet into a wholly-owned subsidiary convincingly positions BT to bid next year for one of the five third-generation mobile licences that will usher in a range of broadband services such as mobile video phones.

Securicor is understood to be close to making a pounds 300m acquisition in the security sector. The company also has communications and distribution operations.

Outlook, page 17

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