BT omission adds fuel to merger ire over MCI deal

UK firm under fire over decision to waive right to pull out of MCI deal in event of financial problems

Telecoms giants BT and MCI have come under a barrage of criticism as the latest chapter in their troubled merger unfolded last week when BT relinquished its right to withdraw from the deal.

The move comes one week after the merger between BT and MCI got back on track following successful negotiations by BT for a #3 billion price cut on the amount it will pay for absorbing its US partner (PC Dealer, 27 August).

BT set up six businesses teams to salvage the merger, one of which was headed by chief executive Peter Bonfield.

The telecoms supplier has decided not to include a ?material adverse change? clause in the final agreement, which means it cannot back away from the merger even if MCI turns out to be a more costly purchase than anticipated.

This is increasingly relevant, as MCI is on course for a $1 billion restructuring charge later this year, on top of $800 million in costs from attempting to break into the US local phone market.

BT?s decision came soon after it had forced MCI to devalue itself, seeing a $5 billion reduction in the amount BT will pay for the US company. While this was greeted with enthusiasm by the stock market, the lack of an escape clause reversed the gains in BT?s share price.

MCI is now facing at least one lawsuit from a disgruntled shareholder. Benjamin Brown from Delaware, US, is alleging that MCI officials have allowed the company to become severely undervalued in their haste to complete the deal with BT.

BT chairman Iain Vallance has said that if BT shareholders refuse to give the merger their backing he will step down from his position.

In the event of the deal falling apart, BT has also said it will pay $750 million in compensation to MCI shareholders.