The revised agreement gives MCI shareholders fewer BT shares when the merger goes ahead, but more cash. Each MCI investor will now receive 3.75 BT shares, plus $7.75 in cash, compared with the 5.4 BT shares and $6 in cash in the original proposals.
As a result, MCI shareholders will end up owning just a quarter of Concert, instead of the 34 per cent in last November's merger terms. To compensate for the loss, BT has agreed to pay out almost $1bn (pounds 600m) more in cash to MCI investors. Because of the reduced share element of the revised deal, Concert will have 10 per cent fewer shares in circulation than anticipated.
But MCI shareholders were dealt a further blow, with news that they will not now begin receiving dividends from Concert until the next financial year, starting in April 1998. Under the old deal they would have been paid the final Concert dividend for the whole of 1997/98, worth a forecast 18.5p a share according to analysts.
The difference means BT will now pay out about pounds 630m less in dividends this year than it would otherwise have done, more than making up for the extra cash paid out through the revised merger terms. "Let's just say the Lord giveth and the Lord taketh away," one analyst said yesterday.
BT said the merger would lead of "modest" falls in its earnings this year and next year, knocking about pounds 90m off profits compared to if BT had stayed independent, equivalent to 1p a share.
But analysts yesterday kept their dividend forecasts unchanged yesterday, implying a yield on Concert shares of more than 5 per cent. The company said it still intended to deliver "double digit" dividend growth in the long term.
BT also warned that the revised deal would raise its gearing - the ratio of debt to equity - from up to 90 per cent projected under the previous terms to 120 per cent. The extra debt would come not just from losses on MCI's local phone market business but also from the pounds 500m windfall tax bill in the UK and BT's higher pensions bill following Budget changes to tax breaks on dividends.