Bt Merger Fuels Bid Speculation
France Telecom is understood to have called a number of investment banks to explore an increase in the 20 per cent stake it and Deutsche Telekom of Germany together hold in Sprint. Like MCI, Sprint is a challenger to AT&Ts hegemony in the US long-distance telecoms market.
It emerged on Monday that Cable and Wireless, which itself came close to merging with BT last spring, has been in discussions on an alliance in international telephone traffic with Nynex, the regional telecoms operator in the northeast of the US.
But C&W indicated it was unlikely at present to combine like BT with a US telecoms operator. But the strongest pressure was on AT&T, the largest US telecoms group, to react to the merger of its main domestic and international rivals.
Investors expect it either to cement its existing Unisource alliance with some of the smaller European operators or seek another international strategic link-up. The prospect of further transatlantic deals was heightened as investors welcomed the BT deal by lifting its shares 22 1 /2p to 373 1 /2p. BT has agreed to buy the 80 per cent of MCI it does not own for more than $20 billion in shares and cash to form Concert, which would be the worlds fourth largest telecoms company by sales.
However, if either MCI or BT end their merger agreement in favour of another acquisition offer, the company cancelling the deal would have to pay the other $450 million, according to merger documents filed with the Securities and Exchange Commission.
Meanwhile, shares in KPN, the Dutch national telecoms utility, rose 50 cents to Fl63 amid speculation that AT&T might seek a minority stake in its Unisource ally. Shares in Vodafone, the UK cellular company which some analysts see as a potential partner for AT&T, were up 4p at 240 1 /2p. Sprint shares dipped in New York as market participants evaluated regulatory obstacles to a takeover by its two European partners. Deutsche Telekom said acquisitions were a lower priority than the reduction of debt which it has promised investors in its forthcoming privatisation issue.
However, at midday Sprint shares still stood more than five per cent ahead of their closing price before rumours of the deal between BT and MCI leaked out on Friday. Investment bankers said Sprint was likely to seek a deal to shore up its position in the increasingly competitive US long-distance market.
Talks between BT and MCI broke down about two weeks ago. MCI executives then engaged in discussions with GTE, another US telecoms company. Investment bankers said the MCI move put pressure on BT to increase the price premium it was paying for MCI to the 30 per cent it disclosed on Sunday. The rise in BT shares increased the value of its bid to $23 per MCI share although doubts about regulatory delays to the deal meant that MCI shares lagged behind the level implied by the bid.
BTs extra debt burden prompted a widening of 5-8 basis points 0.05- 0.08 per cent in the spread between the yield of its Eurobonds and UK government bonds, promising an increase in its borrowing costs.