BT salvages merger and saves pounds 3.5bn

Chris Godsmark

Business Correspondent

British Telecom yesterday salvaged its planned merger with MCI, ending weeks of mounting uncertainty, by negotiating a cut of almost pounds 3.5bn in the purchase price for the US long-distance giant.

The talks between BT's board in London and MCI executives in the UK and US lasted until 3am yesterday morning, though both sides refused to reveal how close the companies had come to abandoning the merger, the biggest in British corporate history.

Sir Ian Vallance, BT chairman, said: "While it looked as if this partnership might not manage a rough patch of turbulence we have been going through, the fact that we have got through it was a testament to that partnership."

The deal was thrown into jeopardy after MCI's shock profit warning last month. The company predicted losses from its attack on the US phone market would double this year to $800m (pounds 500m).

The biggest surprise from the review was that Concert will push ahead with MCI's expansion into the $100bn local market, though the company predicted some scope for cost savings. Timothy Price, MCI president, said speculation that the company would cut 5,000 jobs was "completely wrong."

MCI has found it much harder to break into the local phone market than it had expected. Moves by federal regulators to open the local monopoly companies to competition have become bogged down with legal challenges.

The 22 per cent cut in the merger price went much further than the 10- 15 per cent predicted by most analysts and looked likely to satisfy BT's big shareholders, who were furious that the senior management had been apparently unaware of MCI's problems.

Shareholders will vote on the new terms at a second round of extraordinary meetings by early December, delaying the completed merger by some three months to 1 January. One BT investor said: "The cynical view on the price would be that things must be very bad at MCI, but we think the new deal is good news. The credibility of BT's management has been restored."

Under the renegotiated terms, BT is paying $18.9bn (pounds 11.9bn) for the 80 per cent of MCI it does not own, based on yesterday's closing BT share price, a reduction of almost 22 per cent over the old deal. It values MCI at pounds 14.8bn, down from pounds 19.1bn.

BT's shares soared 23.5p on the news to 436p, while MCI shares, which fell 15 per cent on Thursday, were up just 1 per cent in afternoon trading.

Sir Iain insisted MCI investors were not humiliated because the rise in BT shares yesterday had boosted the total value of BT's cash and shares offer. "It could well be that it is in the interests of MCI shareholders to have a smaller share of a bigger cake."

Tim Price, MCI's president, described the reduced price as a "win-win situation" for both companies. "We are excited by this deal, we are glad to have the deal back on track and we are waiting anxiously to close."

James Ross, from stockbrokers Hoare Govett, said the terms were "pretty sensible." He continued: "Of course it wasn't desirable that they got into this situation in the first place, but they seem to be back on track."

But the prolonged uncertainty since the MCI profits warning left a trail of discontent in the US, with investors who had gambled on MCI's share price nursing huge losses. Guy Wyser-Pratte, a leading US arbitrageur, said BT had walked away with a bargain. "A lot of people, including some of the better US analysts, got the outcome completely wrong. BT directors let people speculate about the review for weeks. I find that absolutely appalling."

Comment, page 19

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back