Small investors should see some gains

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The Independent Online
BT's mega-merger with MCI should be good news for the company's army of small investors, analysts said yesterday. "Private investors who still hold the shares have been through a lot of pain. Let's hope they are about to see some gain," said one telecoms analyst.

BT still has 2.3 million private shareholders who own 23 per cent of the company. More than a million of them own less than 400 shares, worth pounds 1,400.

James Ross at Hoare Govett said BT's underlying earnings growth should increase from 5 per cent to around 11 per cent as a result of the deal, despite initial dilution of between 2 and 3 per cent in the first year. He said investors should also benefit from higher dividends, while the special dividend payout was an added bonus. "I think this is good news for the small investor," he said.

Mr Ross said the benefits of the merger included greater access to the US market. However, he conceded that this brought with it greater risks. "It is certainly a riskier investment but the potential rewards are greater too." He added that BT still had a stable core business with domestic and business customers paying their bills regularly once a quarter.

Mr Ross also said the deal laid to rest criticisms that BT was "just an overblown national telecoms company. After this it will have a big business in the US and a large number of US shareholders."

Other analysts said the move into the US market was a diversification which should be viewed positively. A combination of regulatory uncertainties and increased competition from the cable companies and others in newly liberalised markets has put the shares under pressure in recent years.

BT was one of Britain's most popular privatisations when the first tranche of shares was sold in 1984. The price then was 130p. The second share sale was in 1991 at 335p. The third was in July 1993 at 410p.