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BT set to talk to MCI bid rivals

British Telecom yesterday opened the way to start talks on the future of MCI, its US partner, with the two rival bidders seeking to buy the company.

Chris Godsmark, Business Correspondent, reports on BT's change of tactics after GTE confirmed a $28bn all-cash takeover approach for MCI.

Late last night BT and MCI agreed to lift a gagging clause in their merger agreement which had prevented the two companies from holding discussions with rival suitors. Lawyers from the two companies formally agreed to lift the mutual restriction, which means BT can enter into talks with both GTE and WorldCom, the two US groups circling MCI.

The latest twist came after GTE, one of the largest US telephone companies, threw its hat into the takeover ring with a $40 a share approach for MCI, the long-distance giant. The GTE offer is some $2bn lower than the $30bn unsolicited offer for MCI launched out of the blue earlier this month by WorldCom. However, GTE's bid is in cash, whereas WorldCom is proposing to pay MCI investors entirely in shares.

BT confirmed its decision to lift the gagging clause, a move which will be seen by analysts as a clear sign that the UK group has admitted defeat in its attempt to buy MCI, but would be keen to join a three-way alliance of some sort with GTE.

MCI's board is to meet today to discuss the rival offers from WorldCom and GTE. Following the unsolicited approach by WorldCom on 1 October BT had insisted it cannot enter into discussions until MCI's board had decided whether to recommend the bid to its shareholders.

Like WorldCom, GTE also made clear yesterday that it was keen to maintain the partnership with BT, including the Concert joint venture in the international business communications market. In a conference call to US analysts last night, Chuck Lee, GTE's chairman, said the company was "prepared to enter discussions" with both BT and MCI and nothing would be ruled out.

Analysts emphasised that BT could determine MCI's future if it joined in discussions. Mark Lambert from Merrill Lynch said: "From having been marginalised, BT are back in a pivotal role. GTE want BT's support because it would be a blow to WorldCom's hopes. They've certainly got a better hand than they did yesterday."

BT shares soared 24.5p to 471.5p as dealers digested the prospect of the company receiving $5.6bn in cash for its 20 per cent stake in MCI if the GTE bid went through.

But analysts cautioned against speculation that BT would mount a multi- billion pound share buy-back operation with the money. Jim Ross, from stockbrokers Hoare Govett, said that BT might want to buy a stake in a merged GTE-MCI. "The big missing piece in the jigsaw is how BT could get itself involved in a GTE-MCI deal. For shareholders that's the crucial question," he said.