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BT gets MCI stake in joint venture

Two days after MCI and WorldCom agreed to merge, former suitor British Telecom will acquire MCI's stake in their backbone development joint venture.

Just two days after MCI Communications (MCIC) and WorldCom (WCOM) agreed to merge, former suitor British Telecommunications (BTY) said today it will acquire MCI's stake in their joint venture to develop the world's largest private backbone network.

BT, which owns a 75.1 percent stake in the joint venture, Concert Communications Services, now plans to buy out MCI's 24.9 percent, according to reports first published in the Financial Times.

The decision to buy out MCI's stake comes days after BT said it will sell its 20 percent stake in MCI to WorldCom for $7 billion.

BT owns 137 million MCI shares, and will sell those to WorldCom for $51 per share in cash. BT also will receive a $465 million break-up fee, including expenses, according to the terms of the merger agreement between MCI and BT, which will no longer go into effect given the MCI-WorldCom merger agreement. The break-up fee is payable immediately.

The transaction is subject to approval by MCI and WorldCom shareholders, and also is subject to regulatory approvals.

Beating out bids by BT and GTE (GTE), WorldCom announced the $37 billion purchase of MCI earlier this week.

Through WorldCom's subsidiary, UUNet, and MCI, the combined company will have Internet access through over 2,000 points-of-presence around the globe, making it one of the world's largest Internet service providers. (See related story) The deal also will give MCI access to WorldCom's newly acquired CompuServe ISP as well as America Online's network services companies.

Additionally, the merger will alter the lower-profile segment of the market by reducing the already small number of players--fewer than 50--that collectively serve as the backbone of the Internet. (See related story)

Once complete, the merger with MCI is expected to provide for 20 percent earnings accretion for the first full year as a combined company.

WorldCom raised its bid from $41.50 to $51 a share, which will be paid to MCI stockholders in WorldCom shares. British Telecommunications, which holds a 20 percent share in MCI, will receive $7.4 billion in cash for the Class A MCI shares it owns.

The WorldCom bid for MCI, which topped GTE's latest offering of $28 million, was approved by the board of directors of both companies, WorldCom said in a press release.

As a result of the transaction, and with British Telecommunications bought out, MCI shareholders would own 45 percent of the combined company, to be called MCI WorldCom, while WorldCom would hold 55 percent.

Aust believes that WorldCom has dealt in a very clever way with its shareholders' concerns. "By offering cash to BT, WorldCom managed to address equity holders' worries about dilution," he said. "And its balance sheet could still handle it."

MCI chairman Bert Roberts will become chairman of the new company, and Bernard Ebbers, chief executive of WorldCom, will become CEO.

MCI-WorldCom is expected to have more than $30 billion in sales and serve more than 20 million customers worldwide.

Although the deal requires shareholder approval and needs to be cleared by FCC antitrust investigators, analysts believe that it would be hard for anyone else to beat WorldCom's offer, especially since BT and MCI are both in favor of the merger.