BT Expected to Use Cash for New U.S. Alliances
British Telecommunications’ decision to accept $6.9 billion in cash from WorldCom Inc. for its holding in MCI Communications Corp. leaves it with a fat nest egg and a significant hole in its global ambitions, analysts said.
BT’s decision came after WorldCom raised its offer for MCI by 23% to $51 a share, or $41.43 billion with debt, easily topping both BT’s and GTE Corp.’s competing bids. It also agreed to pay BT $6.9 billion in cash for its 18% MCI stake.
Sir Peter Bonfield, chief executive of BT, said in a statement in London that BT “has many opportunities to pursue alternative alliances in the U.S.,” reinforcing the company’s commitment to use the cash it gets from WorldCom to forge an alternative U.S. partnership rather than returning the cash to shareholders.
BT Chairman Sir Iain Vallance has argued since the late 1980s that BT must have a significant presence in the U.S. market--home to 40% of the world’s multinational companies--to ensure itself long-term earnings growth in an industry where domestic competition is eroding market share.
“We don’t think they’ll give any of it back to shareholders, so we have a ‘hold’ on BT’s shares,” said David Gould, an equity salesman at Credit Lyonnais Laing.
BT’s American depositary receipts rose $2.50 to close at $79.50.
Analysts agreed that one option for BT is to find distributors for its Concert one-stop business telecommunications services in the U.S., including the MCI/WorldCom combination, rather than trying to buy companies. “It’s not as if they have to own anything in the U.S.--that’s the approach AT&T; has fostered internationally,” said James Dodd, telecommunications analyst at Dresdner Kleinwort Benson Securities.
MCI said it will continue to meet its obligations to Concert, the global network joint venture owned 75.1% by BT and 24.9% by MCI.
John Clarke, telecom analyst at Daiwa Institute of Research, agreed. “They could build up distributorships for Concert without having ownership in the U.S.,” he said. “The one thing they should not do is return the cash they get to shareholders--that cash is there to expand the business.”
BT said the sale will bring it a $2.25-billion gain on top of a $465-million breakup fee, including expenses.
“They come out shining from a tremendously embarrassing situation and walk away with $51 a share,” said Scott Wright, an analyst with Argus Research in New York.
BT declined to give details of its plans in the U.S. Analysts said the most likely among potential new partners for BT are GTE, Bell Atlantic Corp. and SBC Communications Inc.
