Outlook: That's the problem with the City - no vision
Thursday 02 October 1997
Unless something unexpected happens, then, BT looks to be definitely out of the running. If you are James Dodd, telecoms analyst at Dresdner Kleinwort Benson, or another part of that vociferous City minority which has opposed this deal all along, that is plainly a good thing. BT is now free to embark on an alternative strategy of handing barrowloads of cash back to its shareholders and engaging in the process of small add-on acquisitions in the US and elsewhere. That's going to do a lot more for shareholder value, Mr Dodd argues, than buying a mature, commodity telecoms company in a highly competitive market.
He may be right, but the fact that WorldCom, one of the best performing stocks on Wall Street over the last 10 years, is prepared to pay such a premium for MCI, and along the way hint that it might also be interested in acquiring BT as well, rather suggests that Sir Iain Vallance and his chief executive at BT, Sir Peter Bonfield, have had the strategy right all along.
Admittedly, there are overlaps and local synergies between WorldCom and MCI that make MCI worth more to WorldCom than to BT. Even so, it is plain from what Bernie "joke-a-minute" Ebbers, WorldCom's founder and president, was saying yesterday that he shares some of the same vision and sense of where the telecoms industry is going as Sir Iain. Both believe the industry will progressively become divided into big global players and small niche domestic operators. By acquiring MCI and making clear his intention to continue with MCI's existing links with BT, Mr Ebbers is putting himself firmly in the first category.
WorldCom is one of those extraordinary business success stories that could only happen in America. Through a combination of inspired entrepreneurialism and aggressive acquisitions, it has grown from nothing 14 years ago, to one of the largest telecoms companies in the US. If it pulls off the MCI deal, it will start to justify its name by becoming the third largest telecoms company in the world by market value, not far behind AT&T and NTT.
Part of the explanation for this is that its stock is by any standards ridiculously highly valued. Wall Street has given Mr Ebbers' ambitions a following wind that Sir Iain can only dream of - the leverage to make big acquisitions at heady prices and give his empire the critical mass it needs to establish itself on the world stage.
BT, a privatised state monopoly, could never have hoped for such support but it might reasonably have expected a less cynical hearing than it got for its MCI transaction. The way in which shareholders forced BT's hand and a sharp downward revision in the terms last summer looked like a victory for common sense at the time. The tragedy is that by doing so, the City may have condemned BT to a permanent position in the second division of world telecom companies. There is unlikely to be another opportunity quite like MCI.
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