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BT to Halve Pension Deficit Setting Up Dividend Increase

BT Group Plc Chief Executive Officer Ian Livingston
BT Group Plc Chief Executive Officer Ian Livingston said, “Shareholders can certainly look forward to increased returns as we go forward.” Photographer: Denis Doyle/Bloomberg

BT Group Plc plans to pay down about half of its 4.1 billion-pound ($6.5 billion) pension deficit this month, allowing the U.K.’s largest fixed-line phone company to consider a higher dividend.

The stock rose as much as 6.9 percent in London, the biggest increase in more than two years. Following the 2 billion-pound lump-sum payment, BT will pay 325 million pounds annually, down from 525 million pounds under the current program, the company said. BT will reconsider its dividend after the pension agreement, Chief Executive Officer Ian Livingston said.

“It was a condition that we had to fulfill,” Livingston said today on a conference call. “Shareholders can certainly look forward to increased returns as we go forward.”

By paying down part of the deficit early, the London-based phone and broadband company is also seeking to move away from past criticism over its pension funding. At the time of the previous deal with the trustee of the pension program, the regulator said in 2010 it had “substantial concerns” over the payment of the shortfall.

Interim Dividend

BT paid an interim dividend of 2.6 pence, an increase of 8 percent. The stock traded 6 percent higher at 233.4 pence at 9:02 a.m. in London trading. Before today, the stock had risen 21 percent in the past year.

The company said in February its pension deficit swelled to 4.1 billion pounds in the quarter through December, compared with a deficit of 2.5 billion pounds at the end of September. The company will base its three-year valuation on the same shortfall.

Paul Spencer, chairman of the trustees of the pension program, said today the company plans to eliminate the total deficit within 10 years.

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