MCI Communications is believed to be ready to accept a price cut of 5 per cent to 10 per cent, to save its proposed merger with British Telecommunications (BT), after the future of the deal was thrown into doubt by the companies. Some US analysts said yesterday that MCI might have to swallow an even larger price reduction.
BT's board met yesterday after the companies surprised stock markets by revealing that they were discussing the "economic terms" of the merger agreement, in the wake of a joint management review of their prospects.
They added: "There can be no assurance as to the outcome of the discussions."
The news sent the companies' shares in opposite directions yesterday. BT's price soared by 29p to 412 1/2p. The 7.6 per cent rise was its largest one-day jump since 1987.
By contrast, MCI had slid nearly 14 per cent, by $5.12 to $31.60 1/4, by early afternoon, reversing an upward trend this week. Expectations had grown that the merger would proceed on unchanged terms which yesterday valued the shares at $41.36.
The statement was made after a lengthy meeting of MCI directors. The "economic terms" being studied are believed to extend beyond price to include big changes at MCI, especially its expansion into local telephone services.
But MCI said job cuts were not being discussed. It said: "Any reports of discussions with BT concerning MCI's staffing levels or head counts are false. No such discussions are under way, nor are any reductions planned."
Some analysts thought MCI had decided to reject any proposed price cut exceeding 15 per cent, although its negotiating position had been seriously weakened because the review had undermined confidence and raised doubts about its core long-distance business.
A US-based BT shareholder said he believed the British company now understood how much the value of MCI had been eroded.
A 10 per cent change in the value of the deal would not be enough, he argued. "I would not settle for less than 25 per cent."
Mr Dan Reingold, US telecoms analyst at Merrill Lynch, predicted a cut of 15 to 25 per cent. He said: "If BT walked away from it entirely, some people argue that they would look foolish. I think they'd look brilliant." But he thought the deal had a 90 per cent chance of surviving.
He said a cut of 10 per cent was "a good number for both sides" to reach a swift conclusion, although it should be larger.
Several analysts and investors suggested BT might aim to cut the offer without subjecting it to another vote of its restive shareholders. One means would be to pay another special dividend before proceeding.
The Federal Communications Commission yesterday approved the deal. The clearance had been expected.
The companies' statement took investors by surprise because MCI had failed to signal any doubts in a filing last week.
