British Telecommunications Plc could be seeking up to a 25% reduction the price of its long-planned merger with MCI Communications Corp, according to some industry analysts. The two companies have finally admitted that financial considerations are the basis for the continued talks between executives. The current talks are all but certain to result in MCI shareholders getting less than the previously agreed 0.54 of a BT American Depositary Receipt and $6 for each MCI share. Since it was announced last November last year the value of the deal has fluctuated between an original $20.8bn in cash and stock to about $22 billion due to an increase in MCI stock prices. However, any financial renegotiation of the deal would mean that the shareholders of both companies would have to vote again. In April, both sets of shareholders approved the deal by wide margins at separate meetings. Given that BT says it still hopes to close the deal by the fall any renegotiation would have to be certain of gaining approval once again. News of the talks followed a two-sentence statement issued by MCI close to midnight EDT on Wednesday. It looked to call the merger itself into question stating Following a joint management review of the prospects of both companies, MCI and BT are having discussions concerning the economic terms of their existing merger agreement. There can be no assurance as to the outcome of the discussions. MCI says it only meant to set out that the price of the deal may or may not change and that the merger is still going ahead. BT has been under growing pressure from its institutional shareholders to renegotiate the deal since July 10 when MCI announced it was to make $800m of losses this year with greater losses follow next year from its efforts to enter the US local phone market. The deal is unlikely to be canceled as BT is reported to be liable for a substantial penalty should it pull out of the merger. Seen as a good deal that enables BT to enter the booming US telecoms market at a time of increased competition, neither company can afford for the deal to fail. BT and MCI simply don’t have the time to rip up their deal and try again with different partners and MCI’s share price would almost certainly collapse if the deal fell through. If the deal goes ahead unchanged, BT are likely to seek concessions within MCI’s business plan to reduce the forecast losses on expansion in to local US markets. However, MCI stresses that current talks are only regarding financial details of the merger and strongly denies reports that suggest that BT may have already persuaded MCI to axe 5,000 employees and to restrict local plans to key urban areas.
