Shareholders to receive pounds 2.2bn windfall

BT's 2.3 million shareholders are to receive a substantial windfall in the shape of a 35p-a-share special dividend, worth a total of pounds 2.2bn, regardless of whether the takeover of MCI goes ahead, writes Chris Godsmark.

The dividend, worth 10 per cent of the value of BT shares at their closing price of 351p last Friday, accounts for just under half the cash which the company will offer to secure the deal and will be paid in September 1997.

To further soften the blow, BT said its final dividend for the year to the end of next March would be 19.85p, an increase of 6.1 per cent on the same period in 1996.

The interim dividend for the six months to 30 September will be 7.9p - 6 per cent up on the previous year.

Explaining the financial implications of the takeover, Robert Brace, BT's finance director, said: "MCI shareholders get some cash and the BT shareholders get some cash. We think they'll like it and that's why we've done it."

In a complex arrangement a further pounds 2.3bn ($3.7bn) in cash will be paid to MCI investors in the form of $6 for each share they hold.

The rest of the estimated $21bn which BT is paying for the 80 per cent of MCI which it does not already own will be in the form of BT shares, which will be renamed Concert shares.

Existing MCI shareholders will get 0.54 Concert shares for each MCI share they own. BT shares trade in the US in the form of American Depository Shares, which are equivalent to 10 ordinary shares in the company in the UK.

Valuing the deal depends on the performance of BT shares. Using Friday's closing price and then subtracting the final and special dividends, which are together worth 54.85p, it suggests MCI shares are worth $32.22.

This compares with a price of $30.25 when MCI shares were suspended in New York on Friday and is somewhat lower than the $35-$37 a share BT sources had privately said was the likely range the company would have to pay.

The deal will transform BT's balance sheet, raising the company's debt by about pounds 3.5bn and increasing its gearing from around 8 per cent to some 65 per cent, which Mr Brace argued was a more efficient level.

How Concert shapes up

Sales per annum $42bn

Number of Employees 180,000

Number of Countries 72

Number of customers 43 million

Market value pounds 33bn

Industry rank 4th

Key facts of the merger

One MCI share = 5.4 BT shares + $6 cash

Concert = 34% MCI / 66% BT

Special dividend = 35p per share or pounds 2.2bn

Advance corporation tax credit available

10% share buyback proposed

pounds 500m a year savings in five years