`Secret deal' charge dogs sale of Securicor's Cellnet stake to BT

News Analysis: Fund managers say mobile sell-off is too cheap at pounds 3.15bn

AS CITY workers lingered over lunch on a warm, sunny Friday afternoon in early July, Roger Wiggs, chief executive of Securicor placed a call to Sir Peter Bonfield, his counterpart at British Telecom.

Mr Wiggs got straight to the point: was BT interested in buying out Securicor's 40 per cent interest in Cellnet? Sir Peter quickly agreed that secret talks should begin immediately.

Nearly three weeks later, on 27 July, Sir Peter announced that an agreement had been struck to pay Securicor pounds 3.15bn for the Cellnet interest, giving BT 100 per cent ownership of Britain's second biggest mobile phone network.

Investors pushed up the share price of both companies in the hours after the deal was unveiled, but lately questions about the price and how it was reached have multiplied. Ultimately, this may threaten the ability of Mr Wiggs and Securicor's board to win the needed 75 per cent approval from shareholders who are to vote on the Cellnet stake sale at an extraordinary general meeting scheduled for 14 October.

Several institutions believe there is a secret partners' agreement governing how investment would be funded for the development of mobile services, relating in particular to acquiring a licence and launching third generation services early in the next century. "Our attitude ... is that we want to see that document and then make our decisions," says one fund manager, who declined to be named.

BT and Securicor refused to be drawn on whether such a document exists. Securicor declined comment ahead of the issuing of listing particulars, to be unveiled on 22 September, for a proposed new company to replace the existing one, should the Cellnet sale be approved.

As ever in the City, the big issue is price. That's despite the fact that Securicor is set to receive pounds 3.15bn for a mere pounds 4m investment in 1985.

If greed is the constant that colours any City player's judgement of value, it is still easy to see how some fund managers might believe that Securicor's 40 per cent Cellnet interest is being sold on the cheap. The sale price gives an implied value for all of Cellnet, which has more than 5 million users, of pounds 8.0bn.

That compares very poorly with the values of rivals as well as the price of recent deals in the mobile sector. Orange, with around 3 million customers, has a market capitalisation of pounds 13bn. Last month, Deutsche Telekom paid pounds 8.5bn for One2One, the country's smallest mobile operator. The perceived value shortfall has been aggressively highlighted by some American shareholders, notably, K Capital Partners. A spokesman for the privately held Massachusetts fund manager says the buyout values Cellnet customers at pounds 1,700 compared with the UK mobile sector average of pounds 3,500.

K Capital and some UK fund managers - including Standard Life and Perpetual, led by Martyn Arbib - also wonder whether Securicor management has an alternative agenda. In this scenario, Mr Wiggs and the company's board negotiated a quick exit from Cellnet to lay the groundwork for an acquisition, or to prepare for a management buyout of the rump company.

What seems undeniable is Securicor is massively undervalued. With a market capitalisation of pounds 3.5bn, the company's remaining distribution, security and communications service businesses are valued at only pounds 350m. That would seem a steal given pro forma annual sales of about pounds 1.2bn and operating profit of nearly pounds 50m. There is also plenty of cash on the balance sheet following the sale earlier this year of a half interest in Securicor's distribution arm to Deutsche Post for pounds 223.5m.

It appears that Securicor, sensitive to criticism, will be bending over backwards to pass the cash windfall from the Cellnet sale to shareholders. City analysts believe that as much as pounds 2.95bn - or nearly 95 per cent of the proceeds - will be distributed to shareholders in cash or via a BT loan note alternative.

Some veteran City observers, while acknowledging the Cellnet stake is probably worth more than pounds 3.15bn, point out that BT, as the controlling shareholder with its executives in all of Securicor's top management positions, was in a strong position to drive a tough bargain.

There is also a belief that some dissenting institutions may have arbitraged or gone overweight in Securicor shares, expecting the stock would eventually rise above 700p. However, since the deal, the stock has traded in a narrow band, closing down 2.5p yesterday at 586p.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'