BT starts fight to win over US shareholders

British Telecom is to launch an unprecedented marketing campaign in the US in an attempt to convince sceptical American investors about the merits of its planned pounds 13bn merger with long-distance carrier MCI, before crucial shareholders' votes on both sides of the Atlantic next month.

At a series of road-shows for the US investment community over the next few weeks, BT will seek to head off any moves by shareholders to sell their stock immediately after the merger is completed, risking a downward spiral in the price. BT has claimed the tie-up will boost the two sides' profits by pounds 500m in five years through improved global marketing and savings on equipment procurement.

Under the terms of the deal, existing MCI shareholders will get 5.4 shares in BT - which will be renamed Concert after the two companies' business communications joint-venture - and $6 per share in cash. US investors are to vote on the merger at MCI's annual meeting on 2 April, while more than 2 million BT shareholders will be asked to approve the deal at an extraordinary general meeting at Wembley Arena on 15 April.

James Ross, telecoms analyst at stockbrokers Hoare Govett, explained: "There's obviously going to be some stock flowing back from the US because investors there won't want to keep it. The merged company won't sit so easily in their portfolios because it will clearly no longer be a domestic organisation."

The scepticism explains BT's plans to get permission to buy back up to 10 per cent of its shares immediately following the merger, which is due to be completed on 1 October. The move would enable BT to mop up any Concert stock dumped in the US. Shareholders will be asked to endorse the buy- back at the EGM in April.

What worries US shareholders most is that MCI's famously aggressive marketing-led culture, sharpened through bitter battles with arch-rival AT&T, will be swamped by BT's background as a bureaucratic, state-owned monopoly. Though MCI's domestic US business will continue to be run mostly independently from BT, investors suspect the UK management will exert a growing influence.

Moves by British executives to end MCI's long-standing policy of rewarding staff with generous share options is the most obvious example of the looming culture shock. MCI's annual report, filed this week, shows that options worth $195m (pounds 121m) were issued to staff in 1996, up from $167m the year before. Insiders estimate the merger will create at least 200 MCI millionaires.

Mark Lambert of NatWest Securities summed up the problem: "Concert will be a very different vehicle from MCI. It'll have lower growth than the American business and be less highly motivated managerially. If MCI has a fantastic year, it all gets diluted if BT merely has a good year."

The gap in growth prospects from the two companies' traditional markets is also yawning. In the nine months to December BT's turnover grew by 4.3 per cent to pounds 11.13bn. MCI's annual revenues in 1996 grew by 21 per cent to $18.5bn. It is hardly surprising that investors are sceptical about BT's claim that the deal will enable both companies to grow more quickly.

Conversely, British investors are having to get to know a lot more about MCI, which many regard as having historically put risk before reward. At the first analysts' road-show in Washington this week, MCI said it was considering accelerating its push into the $100bn-a-year US local telephone market as competition is gradually introduced. A 1996 law will progressively end the monopoly of local phone companies, the so-called Baby Bells, which were split off from AT&T in 1984. The changes will also allow regional operators to compete with MCI in the long-distance market for the first time.

So far MCI has pledged to invest $1bn in building local fibre-optic networks, of which some $600m will be spent this year. However Nate Davis, senior vice president of local markets, said investment could be pushed much further and brushed off the threat from the regional operators in the long-distance market. "They are going to be spending their time protecting their market share. We are going to be spending our time taking market share as an attack organisation."

Start your day with The Independent, sign up for daily news emails
Sport
sportWWE latest including Sting vs Triple H, Brock Lesnar vs Roman Reigns and The Undertaker vs Bray Wyatt
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooks
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
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

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
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

How to make your own Easter egg

Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

Bill Granger's twist on Easter Sunday lunch

Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
Joe Marler: 'It's the way I think the game should be played'

Joe Marler: 'It's the way I think the game should be played'

The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

Cricket World Cup 2015

Has the success of the tournament spelt the end for Test matches?
The Last Word: Justin Gatlin knows the price of everything, the value of nothing

Michael Calvin's Last Word

Justin Gatlin knows the price of everything, the value of nothing