MCI reveals new $1bn provision

Fresh doubts arose yesterday about the financial health of MCI, British Telecom's US merger partner, after it emerged that the long-distance telephones giant is to take a restructuring charge of up to $1bn (pounds 625m) later this year.

Detailing the renegotiated merger terms to analysts last Friday, Douglas Maine, MCI's finance director, confirmed that "rationalisation measures" were "under consideration". When pressed, Mr Maine said that the anticipated provision would be in the "hundreds of millions, rather than a billion".

The new provisions would be on top of the $800m that MCI is expected to lose on its assault into the local US phone market. These losses, double MCI's previous estimate, stunned BT's shareholders last month and triggered the review of the merger. One of the main concerns of BT's UK investors has been that MCI's ambitions will soak up revenues from its British phone business.

Though MCI had previously made references to a possible restructuring charge in its long-distance business, executives had not suggested a figure. Tim Price, MCI's president, also denied to the press conference that followed the analysts' briefing that the company was planning to cut up to 5,000 jobs.

It would be the second big restructuring charge made by MCI in just two years, coming on top of a mammoth $831m provision in October 1995. Of this $216m was related to reorganisation of sales operations, including 3,000 job cuts, with a $520m to cover write-downs of MCI's assets.

The new restructuring plans follow the sharp slowdown in growth in long- distance revenues, which have been the main driver behind MCI's success. In the second quarter of this year long-distance turnover rose just 4.7 per cent, compared with more than 10 per cent in the same quarter a year ago.

Analysts were also surprised yesterday by details of the revised merger terms, filed unexpectedly quickly with the US Securities and Exchange Commission. They showed BT no longer had the right to back out of the deal or renegotiate further.

In addition, BT had agreed to pay MCI $750m if its shareholders voted against the merger, on top of an existing clause where both sides offered to pay each other $450m should they be forced to pull out under exceptional circumstances. A BT spokesman also said reports from the US that Sir Iain Vallance, chairman, had privately offered to step down if BT shareholders rejected the deal were "completely untrue".

The revelations knocked 22.5p off BT shares yesterday, to 413.5p. The UK group is paying pounds 11.4bn for the 80 per cent of MCI it does not own in a cash and shares offer worth 20 per cent less than the previous deal.

James Dodd, telecommunciations analyst with Dresdner Klenwort Benson and a leading sceptic about the merger, said the terms remained "potentially disastrous" and urged shareholders to reject the deal. He continued: "We're now in the extraordinary situation where BT has agreed to pay MCI $750m if shareholders disagree with the British management. It's corporate governance gone mad."

However, large BT shareholders seemed relaxed about the new "lock-in" arrangements. "It's a reasonable compromise. The changes are more an issue for MCI than BT," said one.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent