Although the net effect of the deal between Cable & Wireless Plc and BCE Inc is that BCE pays ?480m for a 20% stake in Mercury Communications Ltd, putting a value of ?2,400m on the company (CI No 2,049), to make the deal tax-efficient, it is structured in a hideously complex serious of transactions that see Mercury turning all its reserves over to Cable & Wireless as a special dividend, which then loans them back until BCE buys the stake in the form of newly-issued Mercury shares, whereupon Mercury uses the proceeds to pay off the loan from its parent (that may not be quite right but you get the idea – while Cable & Wireless needs to get the proceeds of the deal, to avoid capital gains tax, it requires BCE to buy new Mercury shares rather than 20% of the existing ones held by Cable & Wireless, which have risen dramatically in value since they were bought): anyway, the whole thing sounded so complex that the two Financial Times writers at the announcement had to have it explained to them three times, and in the end decided to steer clear of it in their story – and it turns out that it was too complex even for Cable & Wireless, which has now redone its sums, and now realises that it will make a ?120m exceptional profit on the deal, and not the ?300m it announced last week.
