BRITISH Telecom has unveiled the largest merger in Britain's corporate history, linking up with MCI Communications, the second biggest American long distance phone company, to create a £34 billion sterling group.
Six months after alliance talks failed with BT's British rival, Cable and Wireless, BT announced that its deal with MCI, to be called Concert Plc, would create one of the world's largest telecoms groups with 43 million business and residential customers in 70 countries.
But the merger has been strongly attacked by MCI's main competitor, the world biggest telecommunications company, AT&T.
AT&T said the British telecommunications market is "not fully open" and that the announced merger of MCI and British Telecom could negatively impact" on competition. "We believe this proposed merger must get the scrutiny it deserves from the US Department of Justice, the Federal Communications Commission and the appropriate regulatory authorities in the United Kingdom and Europe," AT&T's chairman, Mr Robert Allen, said.
The US giant, which will remain the world's largest in terms of revenues, reiterated its earlier statement that approval of any merger should be contingent "on the complete and unqualified opening of the telecom market in the United Kingdom". Following the merger, BT shareholders will hold approximately 66 per cent and MCI shareholders about 34 per cent. A BT spokeswoman said the cost to BT of buying the 80 per cent of MCI that it does not already own was about £12 billion but the final price would depend on the various share prices.
BT already owned 20 per cent of MCI with which it has created the Concert joint venture, providing a whole range of communications services to customers in more than 50 nations.
"The merger combines the substantial financial resources and global position of BT with the growth momentum and market expertise of MCI, known for its success in the competitive US long distance market," BT said.
Under the deal, which has yet to be agreed by regulatory authorities on either side of the Atlantic, shareholders in MCI would receive up to $3.8 billion in cash as well as 0.54 new Concert American Depositary Shares for every MCI share held. Under the proposed deal, BT is paying its shareholders a special dividend bonanza of 35p per share worth an estimated £2 billion.
BT did not immediately give figures for the total value of the proposed deal, details of which started leaking into the markets late on Friday. But analysts expect the deal to be worth about £14 billion.
BT has been looking for a major acquisition since its proposed merger with British rival, Cable and Wireless, failed in May. BT had been keen to forge that deal because it would have given it access to the lucrative Asian telecoms market - the world's fastest growing market.
Analysts now expect BT and MCI to start making overtures to major Asian players such as Japan's Nippon Telegraph and Telephone Corp, the world's largest telecoms group.
The company said in a statement that the proposed deal would create a world leading communications power house with annual cash flow of about £7.5 billion. BT expects the merger would yield savings from combining overlapping services of £1.5 billion over the first five years and £500 million per year before tax after that.
BT also forecast dividends of 19.85p per share for the year to March 31st, 1997 - a rise of six per cent over last year excluding the 35p per share special dividend. BT, which will release full year results on November 14th, has declared a half year dividend of 7.90p payable in November, six per cent more than in the same period last year.
The deal is believed to be the second largest ever involving a US company topped only by the 1989 buyout of R.J.R. Nabisco by Kohlberg Kravis Roberts and Co.
Analysts said a combined company would be a good fit in the ultra competitive US long distance phone industry, where MCI's major competitors are AT&T Corp and Sprint. Current market leader AT&T, which would be the hardest hit by a financially muscular, new enlarged rival, said on Friday it was confident any MCI/BT deal would receive proper scrutiny by the US government.
