BT to axe Rothschild links

BRITISH Telecom is to drop its main adviser Rothschild, the blueblood firm that has acted as the group's merchant bank throughout its 17 years as a private company.

Merrill Lynch, which masterminded BT's record-breaking £5bn rights issue in the spring and acted as lead adviser on the demerger of the company's mobile phone business, will be the chief beneficiary of BT's move.

The American investment bank is already joint stockbroker to BT, a position secured before the rights issue. Until then, BT's sole broker was Cazenove, which has also served the firm since privatisation.

A source close to the telecoms group said: 'In next year's list of City advisers, it is not likely that you will find Rothschild's name against BT.'

Rothschild earned huge fees last year for arranging BT's £7bn investment in the troubled German Viag mobile phone business. BT was forced to write off £3bn of its Viag stake in its last financial results.

It is understood that Rothschild's standing with BT has been battered as a result. A key figure at BT said: 'We felt that we had been bluffed by our German partner E.ON into paying way over the odds.'

Signs that Rothschild has been falling from favour have been visible for as long as a year. It was excluded from the sale of Yell, formerly Yellow Pages, to a firm of venture capitalists. And it was not given any role in BT's $10bn bond issue last December.

Merrill Lynch also took charge of arranging the sale of BT's Japanese assets to Vodafone in May and the sale of BT's 18% stake in Airtel of Spain, also to Vodafone.

And two weeks ago, chairman Sir Christopher Bland gave a clear sign that he felt BT had been let down by its investment bankers. Announcing interim results, Bland said it was high time BT 'shut up shop' on doing deals. 'BT is not in business to pay huge fees to investment bankers,' he said.

Rothschild director Nigel Higgins denied that his firm was being dropped. 'We do a reasonable amount of work for BT and expect to do a reasonable amount in future,' he said. At the moment, Rothschild is carrying out work on BT's planned disposal of its stake in French mobile operator Cegetel.

A BT spokesman said that while Rothschild had been sole adviser, it was felt that 'BT should not have too great a reliance on one firm'.