Business View: For BT, the End Justifies the Means

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f this were the US, then Philip Hampton, Sir Peter Bonfield and perhaps even Sir Christopher Bland would be facing prosecution, or even jail. The Securities and Exchange Commission has an offence called "conditioning the market" - that is, talking about a securities transaction before you actually announce the details to the market as a whole. In that context, BT didn't so much condition its pounds 5.9bn rights issue, as give it a shampoo and set with highlights.

In the weeks before the event, BT's tone changed; the rights issue went from being a "last resort" to being a "favoured option". In the days before, leading shareholders were sounded out at the offices of Cazenove (which they will know well, as most of these investors are also shareholders in the broker).

They knew they would have to stump up cash for BT, which is no doubt why they are pressurising Cable & Wireless to give 'em some of its potential pounds 7bn money mountain. Graham Wallace would be wise to resist this. Cash is king in telecoms these days.

For many a small shareholder, the rights issue came as a surprise, if not a shock. The deep discount structure is the City's version of demanding money with menaces. If you do not stump up, you are likely to lose out. Average losses for the 1.75 million small investors in BT could be pounds 300, or pounds 525m in total. The most BT has saved by not issuing shares at close to its current price and asking the City to underwrite the fund raising, is about pounds 100m. Is that fair?

This is something ProShare, the body that represents small shareholders, or the Financial Services Authority, the regulator, should do something about. The average investors see the City as a cosy cartel which they cannot break into and so are handicapped when they invest. BT has more small investors than any company, other than Halifax. It has a duty to treat them fairly, which it clearly has not done.

Ultimately BT's rights issue is a "good thing", however badly it has been executed. It enables BT to engage with the financial markets and its own industry, on a sensible footing. For the last few months it has been completely on the defensive, unable to act while its main rivals - Vodafone, France Telecom and Deutsche Telekom - have been snapping up all sorts of opportunities.

BT needs to make decisions for commercial reasons, not because it has massive debts. Stephen Byers and Moody's did not help it much on Friday - the Yell ruling probably knocked a billion off that business's sale price, while the ratings agency will cost BT pounds 30m a year. A few weeks ago, this would have been a disaster. This weekend it is a hiccup.

BT has now developed a credible strategy for recovery. It should not be blown off course. It has to demerge BT Wireless, not sell it to Telefonica or whoever comes round the door. It should give BT Future as much debt as it dare, and then continue the demerger process. …