Outlook: Hope springs eternal for BT's strategy

Huge amounts of time, energy and emotion have been invested by the BT board on bringing about the MCI merger. It is hard to exaggerate how serious a setback the WorldCom counter bid has been - the type of thing executives find it difficult to bounce back from. If Sir Iain Vallance and his chief executive at BT, Sir Peter Bonfield, have got a plan B for realising their global ambitions, there is no indication of what it might be; the stunned silence emanating from BT's Newgate Street headquarters over the past two days rather suggests that they don't. Everything seems to have rested on MCI. Without it, BT may have to reconcile itself to its present role as just another low-level national telecoms utility.

Hope springs eternal, however, and for the time being the strategy seems to be to turn a blind eye to reality and insist that there is still some chance of pulling off the MCI deal. This line of reasoning rests largely on the assumption that MCI shareholders will think a bird in the hand worth two in the bush. BT's cash and shares bid is there on the table having finally cleared all regulatory obstacles. By contrast, WorldCom's all paper offer is at least six months off and more likely a lot longer.

Moreover, as our story on page 23 explains, WorldCom is a creature of Salomon Brothers, the Wall Street investment bank, and largely its creation. With its hectic series of acquisitions, WorldCom has become a finely tuned fee earning machine for Salomon's, so much so that it is reasonable to suspect that this is actually its purpose. Add to that the huge arbitrage position Salomon Brothers was running on the BT/MCI transaction, on which it stood to make a substantial loss, and the real substance and purpose of this offer in highly rated WorldCom shares begins to look very questionable.

Trouble is, that though these arguments might look a runner from this side of the Atlantic, they are so much junk mail in the highly charged, ethylene driven, never never world inhabited by Wall Street investors these days. On Wall Street the choice is between one of the US's greatest ever growth stocks, and a bog standard, low growth European utility. From the sober and considered environment of the City of London (no joke intended), it is as plain as a pike staff that WorldCom's bid for MCI is a classic and foolish top of the bull market transaction. Unfortunately, for BT, this is as unobvious to US investors as the great speculative bubble of Wall Street itself. In the absence of a market crash, a plan B is rapidly going to have to wheeled out of whatever deep vault it has been hiding out in.

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