BT in pounds 35bn merger talks to create the world's second-largest telecoms company

British Telecom last night said it was in merger talks with MCI, its US partner in which it has a 20 per cent stake, to create the world's second-largest telecommunications company after Japan's mighty NTT.

The merger would involve BT taking over MCI by buying the remaining 80 per cent of the company it does not already own, valuing MCI at $21bn (pounds 12.8bn). BT's current stock market value is pounds 22bn.

BT paid $4.3bn (pounds 2.6bn) for its 20 per cent stake in MCI in 1994, beginning a partnership in global communications which includes its joint venture business communications company, Concert.

The dramatic series of events began when MCI shares were suspended in the US at 1.30 pm New York time yesterday (6.30pm UK time) as speculation about the talks mounted. Shortly beforehand, MCI's share price had climbed more than 16 per cent, to $30.62.

Confirmation came first from MCI and then from BT. In a statement BT said: "BT acknowledged this evening that is it considering a possible strategic merger with MCI. BT's board will meet over the weekend to consider an anticipated proposal from MCI.

"BT anticipates that it will be able to make an announcement prior to the opening of the London markets on Monday. BT and MCI have both said that there can be no assurances that an agreement will be entered into or that any transaction will be consummated."

The combination of BT and MCI would be larger than the US's biggest telecommunications group, AT&T. In terms of sales and profits BT is by far the bigger of the two companies. Last year MCI had sales of $15.3bn (pounds 9.6bn) while BT's turnover was pounds 14.5bn. MCI made pre-tax profits of $897m (pounds 564m) compared with BT's pounds 3bn.

In terms of employees, BT has 125,000 staff in the UK and some 3,000 overseas, while MCI has around 50,000 workers.

If the two sides can agree on a price, the next hurdle will be obtaining regulatory approval in the US. Last night, Tom Boasberg, the senior legal adviser to the US watchdog, the Federal Communications Commission, said the announcement had come as a complete surprise and no application had been made to authorities in Washington.

"This is the first we've heard of it. We were in a meeting and someone came in and told us it was on the television," he said.

The merger would need to clear rules which limit foreign holdings in US firms to 25 per cent. Mr Boasberg explained: "The crucial test is whether it is pro-competition for US consumers. The key is to what extent the foreign market, in this case the UK, is open to US firms."

Although the UK has one of the world's most deregulated telecommunications markets, the process of gaining US official approval would still take several months.

Another possibility involves a successful outcome to World Trade Organisation talks about opening up world telecommunications markets.

The deal would also cement an increasingly close relationship between BT and Rupert Murdoch. Directors of MCI include Sir Peter Bonfield, BT's chief executive and Mr Murdoch. BT and News International revealed plans in September to launch an internet service for the UK consumer market called Springboard.

In May 1995 MCI and Mr Murdoch's News Corporation signed a deal to create two joint venture companies offering satellite television services to consumers, American Sky Broadcasting and SkyMCI.

The merger would be the culmination of the drive by Sir Peter and the BT chairman, Sir Iain Vallance, to expand BT's horizon's overseas. It leaves one piece of the international jigsaw missing - the elusive link- up with NTT of Japan.

However, BT already has joint ventures in France, Germany, Italy, the Netherlands and Spain. Last month it forged an alliance with the French utility, Compagnie Generale des Eaux, by paying pounds 1.1bn for a 25 per cent stake in a new telecommunications group Cegetel.

The link-up with MCI, the world's third-largest long-distance telecoms company, follows the failure of BT and Cable & Wireless to agree a pounds 33bn merger earlier this year.

That deal foundered over price and the difficulty of getting regulatory approval in Europe, Hong Kong and the US.

The two most important European alliances forged so far by BT are in Germany, the largest telecommunications market on the Continent, and France. Last year it signed a deal with Viag in Germany to set up a telecommunication service in Germany to compete with Deutsche Telecom.

The alliance with Viag will enable BT to cover 80 per cent of the German population and will provide services to business and residential customers.

Viag InterKom, based in Munich, will also offer international telephone and data services supplied through Concert. BT's French partner, CGE, already operates the number two mobile telephone operator in France, SFR which has more than 700,000 customers.

But Cegetel will apply for a fixed licence to operate a full range of services from 1 January 1998.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat