The bidding war for MCI escalated last night as GTE, one of the largest phone companies in the US, was poised to launch an all-cash offer for the company worth up to $27bn (pounds 17bn). Shares in both MCI and GTE were temporarily suspended, but later resumed trading as dealers waited for GTE to strike with a bid.
One report from the US said GTE's executive board, which has long coveted a deal with MCI, was meeting to decide whether to announce a formal approach. Though the precise scale of any offer from the company remained unclear, it was expected to value MCI shares at up to $38, below the $41.50 price of WorldCom's $30bn approach that was made a fortnight ago. However the bid would be well above the $24bn price tag placed on MCI by BT's recently revised merger terms.
Analysts said the fact that GTE was apparently prepared to pay MCI shareholders in cash would almost certainly scupper the bids by BT and WorldCom. WorldCom was offering to pay MCI investors in shares, while BT's revised offer was a mixture of cash and paper.
BT has rubbished WorldCom's bid, suggesting MCI shareholders might be reluctant to end up with shares in the fast-growing company. However, a cash bid from GTE would be considerably harder to fight. MCI's board is still considering WorldCom's approach, and is expected to take at least another week before deciding whether to recommend it to shareholders.
BT executives were last night waiting for further news on GTE's position and declined to comment. "We've heard the rumours but until such time as GTE launches a formal bid we can't say anything," said a spokesman.
Jim Ross, a telecommunications analyst with stockbrokers Hoare Govett, said GTE's interest would further hamper BT's own ambitions. "This certainly makes things much more complex for BT, because they've told their shareholders MCI is worth much less than this."
However there were suggestions yesterday that a bid by GTE could work to BT's advantage by providing the group with an even stronger American partner, one that was big enough to challenge AT&T's supremacy. With sales of more than $21bn last year, GTE, based in Stamford, Connecticut, is almost four times the size of WorldCom.
BT's 20 per cent stake in MCI could provide the UK group with a valuable bargaining tool to forge an alliance. The UK company can also influence the outcome through the poison pill clause in its existing merger agreement with MCI, which says the US group would have to pay $450m to BT if it backed out of their agreed deal.
A bid by GTE could also leave BT with more than pounds 3bn in cash if it sold its entire MCI shareholding. The money would provide a valuable war chest to make alternative global acquisitions and fund another round of special dividends or buybacks for BT's shareholders, on top of the pounds 2bn paid out this year.
One industry observer said last night that it was more likely that BT would engage in talks with GTE than with WorldCom, which has offered to hold three-way discussions with the UK company and MCI. WorldCom's offer of talks with BT has so far been rebuffed by Sir Iain Vallance, chairman, and Sir Peter Bonfield, chief executive.
GTE has already circled MCI twice over the past year. Before BT launched its offer for MCI in November 1996 GTE had examined launching a bid, while this summer executives took another look at the company when BT signalled its intention to renegotiate the offer.
GTE traces its ancestry back to 1918, when two Wisconsin railway officials moved into the expanding American phone business. After a chequered history during the depression, the company established itself as the biggest independent phone company alongside the AT&T monopoly.
In the 1980s GTE sold Sprint, its long-distance business, to concentrate on attacking the $100bn-a-year local US phone market. It was MCI's drive into the local marketwhich prompted this year's shock profits warning and first plunged BT's bid into jeopardy.