British Telecommunications Plc has decided to stop pussyfooting around in its efforts to establish a global business, and to gamble all on the big one. It has agreed to take a 20% stake in the second largest long-distance carrier in the US, Washington-based MCI Communications Corp, hand over most of BT North America to MCI, and, most importantly, combine its global network services business with that of MCI in a joint venture in which it will hold a 75% stake – thus getting over the problem it hit with McCaw Cellular Communications Inc that it was prohibited by US regulators by controlling more than 25% of the votes – it holds 22% in McCaw, which it is in process of selling to AT&T Co – or gaining any real influence at the company. It faces the same 25% restriction with MCI, but its controlling stake in the joint venture gets round the problem – and also neatly circumvents the challenge from AT&T and others to its application to be granted rights to offer switched services and International Virtual Network services in the US. The global network, in which the partners have committed to investing over $1,000m all told, will combine the two companies’ international enhanced voice and data services – including BT’s Global Network Services and MCI’s Vnet virtual private network, and will absorb British Telecom’s Atlanta-based Syncordia Corp telecommunications systems integration and facilities management business. British Telecom will subscribe about $4,300m in cash for new shares in MCI, with some $830m will be paid immediately. British Telecom will nominate three directors on the board of MCI, the chairman of MCI will join the BT board. A study conducted by the International Institute of Communications in 1992 lists BT as the fourth largest, and MCI the sixth largest and the fastest growing – carrier of international traffic. British Telecom is to buy MCI shares at an average price of $64 per share – against a price in the market of $52.50 – and is paying $830m now to acquire, subject to regulatory clearance, an initial 4.9% holding in MCI. It says there will be minimal impact on its earnings in the immediate future from taking the equity stake, which will be funded from cash resources and borrowings. It will hold the right to invest in further common stock to maintain its holding at 20% should MCI issue more stock or MCI option holders exercise their options. The new initiative is likely to be challenged in the US, but is much harder to oppose, because British Telecom is effectively agreeing to stay out of the US market in return for a 20% stake in MCI and control of the MCI operations that are out of reach of US regulators. BT is prohibited from increas ing its shareholding in MCI above 20% for 10 years. The market, remembering the Mitel Corp fiasco and McCaw disappointment, was unim pressed, marking the shares down sixpence on rumours of the deal, which was rather sceptically flagged here way back in January (CI No 2,090) – and another tupp ence to 419 pence after the agreement was announced.
