WorldCom’s Gain Could Be BT’s as Well

WorldCom’s unexpected $30-billion bid Wednesday for MCI Communications appears almost certain to scuttle British Telecommunications’ deal to buy MCI--but BT may come out the better for it anyway.

Losing MCI would throw the British giant’s ambitious effort to build the world’s first truly global phone company into disarray. But the WorldCom deal could be a cash windfall for BT--yielding as much as $600 million in “breakup fees” as well as a big gain in the value of BT’s existing 20% stake in MCI, for which it paid $4.3 billion in 1994.

BT shareholders, who were never enthusiastic about the MCI transaction and whose protests forced BT to cut its offer price from $21 billion to $17 billion this summer--opening the door for WorldCom--were delighted with the turn of events.

“As long as BT doesn’t come back to the table, it’s great,” said Richard Lewis, director of European fund management at WorldInvest Ltd. “They went and nearly blew it on a deal that is clearly very poor.”

“For BT, WorldCom’s offer is an absolute dream ticket,” said James Dodd, analyst at Dresdner Kleinwort Benson in London. “It will walk away with a cash pile.’

At the same time, BT’s “whole global strategy is built upon a platform which incorporates MCI,” said Mark Lambert, head of British telecom research at Merrill Lynch & Co. “From BT’s point of view, this makes things very difficult.”

Just five weeks ago, BT heralded the “powerful strategic rationale for the merger.”

Even if BT wanted to come back to the table to make a higher bid, it probably couldn’t afford to, said David Campbell, analyst at Greig Middleton & Co. Still, BT might be able to work out a deal with a combined WorldCom-MCI, he said.

WorldCom Chief Executive Bernard Ebbers told Bert Roberts, MCI’s chairman, in a letter that “it is in the best interests of all parties to come to a three-way negotiated agreement providing for the merger of WorldCom and MCI.”

If such an agreement isn’t reached, some analysts say, BT is well-positioned otherwise and has plenty of options in the U.S.

A partnership with AT&T;, Bell Atlantic or smaller local phone companies in the U.S. are all possibilities, Dodd said. “There are lots of alternatives which would be far less risky than MCI.”