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BT, MCI to review merger
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August 21, 1997: 10:27 a.m. ET
British Telecom may want to redo parts of deal after MCI's loss warning
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NEW YORK (CNNfn) - British Telecommunications Plc is taking another look at its planned $22 billion transatlantic merger with MCI Communications Corp.
The companies said in a statement Thursday they are reviewing the "economic terms of their existing merger agreement," which was announced last year. They cautioned that "there can be no assurance as to the outcome of the discussions."
Markets reacted strongly to news of the merger review. Shares of MCI (MCIC) fell 5-5/16 to 31-3/8 in early morning trading while British Telecom (BTY) gained 2-5/8 to 64-5/8.
The two companies are planning a global telephone group to be known as Concert. British Telecom already owns 20 percent of MCI.
MCI and British Telecom had hoped to have the deal locked up by the end of August but now that may not be possible. A spokeswoman for long-distance provider MCI would only say that "the discussions are ongoing and a decision will be announced at the appropriate time."
Analysts say British Telecom may have had second thoughts about the price of the deal after MCI announced in July that it would lose $800 million this year due to costs incurred while attempting to break into U.S. local telephone markets.
Another warning sign for BT may have been MCI's slowing core business growth rate, which fell to under 5 percent from 10 percent at the merger's inception last year.
In the end, the two telecoms are "mutually dependent," said telecom analyst James Ross of ABN AMRO Hoare Govett.
"The reason why MCI needs BT is because it has to get beyond long distance into local telephony in the US -- that's where the growth is going to be. And the reason why BT needs MCI is because it needs to expand outside the UK," said Ross.
-- Randy Schultz
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British Telecom
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