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News > Deals
BT cuts Concert price
August 22, 1997: 5:45 p.m. ET

BT negotiates $3 billion cut in price for U.S. long-distance giant MCI
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NEW YORK (CNNfn) - British Telecommunications Plc and MCI Communications Corp. announced agreement Friday to cut the price BT will pay for MCI by some $3 billion -- almost 20 percent of the merger's original value.
     BT revealed Thursday that it was reviewing the price of the deal, originally valued at $20.1 billion when announced last November.
     Presuming the merger goes forward, a BT-MCI tieup would represent the biggest non-U.S. acquisition of an American company, as well as the largest deal in British corporate history. It would also be the eighth largest merger globally.
     Friday's cut in the deal's value came in response to MCI's recent warning that it expected to lose $800 million this year as the firm attempts to break into the U.S. short-distance market.
     Under new terms for the planned merger, BT will pay about $17 billion to buy MCI and create a joint entity, to be known as Concert Plc. BT already owns about 20 percent of MCI.
     The revised terms call for investors to receive $7.75 cash and 0.375 Concert American Depositary Shares (ADSs) for each MCI share held.
     The deal's original terms had called for investors to receive 0.54 Concert ADS shares and a $6 cash payment.
     "We are pleased we that we have been able to reach an agreement so quickly on the best way forward following changes in the U.S. environment," BT Chairman Iain Vallance said. "This has been a tough time for both executive teams."
     Yet analysts remained uncertain as to whether the deal's new price tag better reflected MCI's true value.
     "They (BT) are certainly getting (MCI) on much better terms than we would have thought they were going to be able to negotiate," said telecom analyst James Golob of Deutsche Morgan Grenfell.
     In fact, some analysts said MCI would have a hard time selling the revised deal to shareholders.
     "I think BT's pulled off the unbelievable," said Andrew Moffat of SocGen said. "We were (expecting) a maximum of a 10 percent reduction in terms."
     Said another analyst: "MCI is going to have to ... explain (to shareholders) why they did this -- why were they prepared to accept such a significant cut."
     Another question is how the new price will affect MCI's shares.
     On Friday, MCI stock (MCIC) dropped 5/8 to 29-15/16 on the Nasdaq Stock Market. BT shares (BTY) -- which trade on the New York Stock Exchange as American Depositary Receipts (ADRs) -- rose 1-13/16 to 68-3/16.
     Despite all of the obstacles, the Concert venture has the potential for large rewards.
     BT and MCI estimate their merged entity will have 43 million business and residential customers worldwide and initial revenues of about $43 billion -- 6 percent of the $670 billion global telecommunications market.
     BT also expects benefits from the merger to reach as much as 1.5 billion pounds ($2.4 billion) in the first five years following the merger's closure.Back to top
-- Randy Schultz, with contributions from Reuters news service.

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