Less than 24 hours after admitting that talks were taking place British Telecommunications Plc has negotiated a $5bn price cut for its long planned merger with MCI Communications Corp. The new deal is valued at $17bn, a 22% cut on a deal which had been valued at around as much as $23bn. By salvaging a deal the two will combine to form Concert Communications by the end of the year, creating the world’s fourth biggest telephone company. The breakneck speed of the deal, and more importantly MCI’s capitulation, has led to speculation that either BT threatened to walk away from the merger or found, that during its month long investigation into MCI business it found more troubles than have been made known. Under the terms of the new deal, MCI shareholders get a smaller proportion of Concert, from an original 33% holding down to a 25%. MCI President Tim Price and BT chief executive Sir Peter Bonfield described the revised deal as a win-win situation for the two companies. But BT is offering a greater proportion of cash for the deal at $7.75 per Concert American depository share up from $6, which are exchanged at $0.375 for each MCI share. Just as BT seemed to pushed into the renegotiation by its shareholder concerns so he extra cash being paid to MCI shareholders is a necessary as a sweetener for the MCI shareholders. Both sets of shareholders must be consulted again before the new deal can be closed. However, the kick back will affect Concert’s long term prospects by forcing Concert’s borrowings up, with a projected increase of gearing to 120%. The new terms reflect changes in the marketplace said BT, a reference to the beating that MCI’s stock took following its announcement last month that it would suffer $800m losses in its local telecom operations with greater losses to follow next year. The resulting month-long review of MCI’s books has cut the price and has also reduced the meant that BT has re-evaluated the earnings growth rate of Concert and downgraded them. Sir Iain Vallance, BT’s chairman, said it had been a tough time for both sets of executives, but said Concert would now be launched at the end of the year. Tim Price, MCI’s chief operating officer, said: We came down with the price so that this will be a win/win situation for both companies. Assuming shareholder blessing is forthcoming for the merger, Concert will have 43 million business and residential customers worldwide, generating revenues of $43 billion, about 6% of the total global telecoms market. The announcement of the review’s conclusions follows hard on the heels of Thursday’s approval by the FCC of the merger between the two companies. The approval will not have to be re-sought. However, the FCC did demand four conditions. BT has agreed a settlement rate for landing international calls from the US of 7 cents a minute, one of the lowest in the world. Both companies have also promised to open up capacity on their transatlantic cables to competitors, and to comply with the EU’s intention to introduce pre-carrier selection. Finally, MCI will be treated as a dominant carrier for the US-UK route, since BT retains over 80% of the UK market 15 years after privatization.