British Telecommunications Plc’s chairman, Sir Iain Vallance, has offered to resign, claims the New York Times, if BT’s shareholders fail to agree to the revised terms of the proposed merger with MCI Corp. This, claims the paper, was the moment that persuaded MCI’s board to accept the reduced offer. But for all his grandiose bravado, Vallance is fully aware of the need for a scapegoat should the deal fall apart. Termination of the merger would leave BT facing lengthy legal battles and heavy financial penalty clauses, ultimately paid for by the shareholders. In such circumstances, it is unlikely that the board could survive intact anyway. Coincidentally, the story comes just as the UK Sunday Times has revealed a new survey claiming that Vallance is the third most overpaid executive in Britain, with a salary (currently 500,000 pounds p.a.) which is twice what it should be when compared to his peers in other FTSE 100 companies. This follows criticism from PIRC, the pensions and investment research consortium, of BT’s newly proposed executive remuneration scheme designed for senior managers and executives on the Concert board. But if Sir Iain really did save the day, its difficult to see how a remuneration committee could place a pound sterling value on all those saved faces and all that salvaged pride. And it seems that laying the chairman’s head on the block wasn’t the only potential sacrifice BT has made. Friday’s filing of documents with the US Securities and Exchange commission by MCI shows that BT has dropped a clause in the agreement allowing it to change its offer in the face of a material adverse change in MCI’s business. In other words, further skeletons in MCI’s closet like the $800m of losses it revealed to spoil the original deal, will make no difference. Additionally, BT has put a gun to its own shareholders heads by signing itself into a $750m penalty clause, payable to MCI if BT’s shareholders fail to ratify the new $17bn price tag. And just in case that wasn’t enough, BT has lowered the majority required from its shareholder owners from 75% to just 50%. These tactics are all designed to back BT’s shareholders into a corner, and none of it is good news for the various city institutions who gambled huge amounts on BT being forced to pay through the nose on the original terms. Salomon Brothers are rumored to be the biggest losers and are set to loose millions of dollars. But is wasn’t all bad news for Salomon’s today. As investors digested the new terms of the merger, BT’s shares retreated from Friday’s recovery by dropping 22.5 pence to 413.5 pence.
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