Golden Share Worry For Bt, Mci Deal

The governments golden share in British Telecommunications could prove the only serious obstacle to its plans to merge with MCI of the US, it emerged thursday. The merger, which would create a $20 billion (12.3 billion) telecommunications giant, was this week approved by the European Union competition authorities, but has yet to be passed by the US Federal Communications Commission and the US Department of Justice. BT executives, buoyed by Brussels decision to approve the merger several weeks ahead of expectations with only minor conditions attached, remain confident the US authorities will follow suit by the late summer.

They are concerned, however, that the golden share, which gives the government the right of veto over a potential buyer, could prove an obstacle. The FCC could argue that the share gives the UK government rights in the merged company which would not be reciprocated in the US. The government might have to relinquish the share or arrange a compromise with the US government for the merger to go ahead.

 

Announcing the companys annual results on thursday, however, Sir Peter Bonfield, BT chief executive, said he could not anticipate any conditions which might be set by the FCC for approving the merger: We are not actively horse-trading with them at the moment, he said. In its final year under its present colours -after the merger the group will be known as Concert BT produced results towards the bottom end of market expectations as competition at home and abroad and price controls took their toll.

Pre-tax profits of 3.2 billion (3.02 billion) were 6 per cent ahead, after a final quarter of 695 million (584 million). Earnings per share improved 3.7 per cent at the year-end to 32.8p (31.6p). Turnover was 14.9 billion, a 3.4 per cent improvement on last years 14.5 billion. Inland call volume was essentially unchanged at 4.88 billion. Calls over high speed ISDN lines grew by more than 40 per cent while telemarketing services saw growth of more than 50 per cent. Calls from fixed to mobile phones grew 15 per cent.

A proposed final dividend of 11.95p makes a total of 19.85p , an increase of 6 per cent. The company is also paying a special dividend of 35p as a result of the greater gearing planned to finance the MCI acquisition. * Comparing last years fourth quarter with this time shows significant declines in inland and international call revenues. Some of this is because of anomalous factors, but the evidence is that competition from cable and other operators is hitting the heart of BTs business.

The situation in the UK is unlikely to improve.BTs best hope of significant growth lies in making a success of the merger with MCI.

The shares look a hold at best, given the risks implicit in the tie-up. Analysts are suggesting a prospective p/e of 13 as at March 31 1999, the end of the merged concerns first full year. The shares look fully valued at 452 1 /2p, up 3p yesterday.