Shares in British Telecommunications Plc leaped yesterday morning as the market got its first opportunity to comment on the agreement to acquire MCI Communications Corp, putting on 26.5 pence at 377.5 in early trading, later falling back to 373 – but the prospect of the 35 pence per share special dividend would have been enough […]
Shares in British Telecommunications Plc leaped yesterday morning as the market got its first opportunity to comment on the agreement to acquire MCI Communications Corp, putting on 26.5 pence at 377.5 in early trading, later falling back to 373 – but the prospect of the 35 pence per share special dividend would have been enough to make the shares dance on its own. While after a lot of effort, the British Broadcasting Corp managed to find a couple of Jonahs to cast cold water on the deal, the reaction almost everywhere was very positive as traders took heart that British Telecom had decided to escape the bonds imposed on it as dominant carrier by the UK regulator to strut its stuff on the international stage. Even those with reservations about the deal agreed that British Telecom had to take the opportunity while it was there or risk seeing MCI snapped up by a competitor. The risks are also greatly reduced by the fact that the two have successfully worked together in their Concert joint venture for three years, so are hardly unknown to each other; Concert already has $1.2bn in contracts, annual revenue of $300m, and may have just turned its first profit. A big plus of the deal over AT&T is that despite its manifold initiatives, when seeking deals in other parts of the world where growth is most promising – Asia, Latin America, Africa – AT&T can effectively still deliver only the US where Concert Global Communications will be able to deliver the US and Europe. British Telecom is paying $36 an MCI share – $30 in shares and $6 in cash – for the 80% it does not already own, against MCI’s Friday close of $30.25. Concert will also buy back up to 10% of its shares after the deal closes. The new Concert Global Communications will have annual net profit of almost $5bn, revenue of $42bn and a current capitalization of nearly $55bn compared with AT&T’s $55.2bn. By combining, British Telecom and MCI say they can cut $2.5bn in costs from their operations over the next five years, saving $850m in the fifth year alone. Opinions are divided on whether Rupert Murdoch is a winner or a loser on the deal, but on balance he looks a loser – MCI will now cap its investment in News Corp at the current $1.3bn instead of exercising its further options, and will cut its equity stake in American Sky Broadcasting Inc to less than 20% from 50% now. And although Murdoch is a director of MCI, he will not be on the board of the merged company. MCI’s Bert Roberts and Sir Iain Vallance will be co-chairmen and Sir Peter Bonfield chief executive of the new Concert Global Communications, and Gerald Taylor, MCI’s president, will be chief operating officer. The deal should offer very significant scope for cutting transatlantic phone rates since both parties will have a big interest in being as competitive as possible – to the point where AT&T may for the first time be reduced to complaining that transatlantic rates have become too cheap.