British Telecom cuts price for MCI, deal announced today
By Dirk Beveridge, Associated Press, 08/22/97 04:23
LONDON (AP) - British Telecommunications, shaken by the prospect of
big losses at intended merger partner MCI Communications Corp., has
cut the price by billions of dollars in a new deal announced today.
British Telecom and MCI said they will proceed with their plans to
create a global telephone powerhouse called Concert PLC, a day after
acknowledging they were negotiating a lower price.
Since the deal is in shares and cash, an exact price is impossible to
pinpoint until it closes, but a British Telecom executive said it is
now in the range of $16 billion to $17 billion - down from an original
deal worth nearly $21 billion.
After MCI announced last month it would lose some $800 million this
year due to problems breaking into local U.S. telephone markets,
British Telecom investors immediately began clamoring for a lower
price,
British Telecom immediately said it was concerned about the outlook at
MCI and began a review of the situation.
The company stayed mum on its intentions, until jolting financial
markets on Thursday by acknowledging that a new price was likely.
MCI shares plunged 17 percent in New York, while British Telecom
rallied in New York and London by about 7 percent.
British Telecom had originally offered MCI shareholders $6 in cash and
5.4 British Telecom shares for each of their MCI shares, but revised
the offer to $7.75 in cash and 3.75 British Telecom shares.
``We are pleased that we have been able to reach agreement so quickly
on the best way forward following the changes in the U.S. telephone
market,'' said the British Telecom chairman, Sir Iain Vallance.
``This has been a tough time for both executive teams, but the results
are a reflection of our professional relationship, built up over four
years of partnership,'' Vallance said in a statement. ``We have
maintained our momentum and will launch Concert around the end of
1997.''
British Telecom purchased a 20 percent stake in MCI and set up a joint
venture, also called Concert, four years ago.
British Telecom scheduled a London news conference for this afternoon.
MCI Chairman Bert Roberts said that despite the lower price, ``when
looking at the alternative scenarios, moving forward with the merger
on new terms was the best choice for Concert and all the
shareholders.''
Analysts had said British Telecom held the upper hand in their recent
talks.
It would have been easier for British Telecom to walk away from the
deal, because MCI had to either face a lower price from British
Telecom or a much, much lower price on the stock market if the deal
fell apart, analysts said.
British Telecom and MCI said today that their merged group will have
43 million business and residential customers in more than 70
countries, with joint ventures and alliances in another 40 countries.
Concerts initial revenues are forecast at $43 billion a year - or 6
percent of the $670 billion global telecommunications market - which
is expected to keep growing dramatically with many business
opportunities becoming available as telephone services are deregulated
in many countries.
The merger cleared its last regulatory hurdle on Thursday, when the
U.S Federal Communications Commission gave its blessing.