BT and AT&T Form $6 Billion Global Joint Venture, Ruling Out Full-Scale US Merger

Strategic Insights -

In a significant move to tap into the global telecommunications market, BT, Britain's biggest phone company, has entered into a $6 billion joint venture with US telecommunications giant AT&T, effectively ruling out a full-scale merger in the US. The partnership, yet to be named, will pool international assets to create a new company, headquartered in the US, which will focus on providing high-speed services to multinational corporations and carry traffic between national borders.

Key Takeaways:

  • The joint venture will have 5,000 employees, annual revenues of about $6 billion, and an operating profit of $600 million in its first year.
  • BT and AT&T will be equal partners, aiming to grow revenues by 15% and profits by 15-20% annually.
  • The deal is expected to boost earnings for both companies from day one, although regulatory approval may take up to a year.
  • The venture will stimulate competition in the telecommunications market by supporting new operators and lowering prices.
  • Sir Peter Bonfield, BT's chief executive, has stated that the deal means the company does not need to pursue a big merger in the US.
  • The partnership will invest $600 million a year to build a global telecommunications network based on the hi-tech Internet Protocol standard.
  • BT will receive $4.3 billion for its shares in MCI when the WorldCom takeover goes through, expected shortly.
  • The deal will add about 2p to BT's earnings per share in 2000, rising to 4p by 2002.

Statistics:

  • $6 billion: joint venture value
  • 5,000: employees in the new company
  • $6 billion: annual revenues of the new company
  • $600 million: operating profit of the new company in its first year
  • 15% per annum: growth in revenues
  • 15-20% per annum: growth in profits
  • $4.3 billion: value of shares BT will receive from WorldCom takeover
  • 2p (2000) to 4p (2002): additional earnings per share for BT

Sources:

  • "BT and AT&T form joint venture, rule out full-scale merger" by L.C. (The Times, no date mentioned)
  • Quote from Sir Peter Bonfield, BT's Chief Executive
  • Quote from Sir Iain Vallance, BT's Non-Executive Chairman
  • Quote from Michael Armstrong, AT&T's Chairman and Chief Executive
  • "AT&T to Buy Cable TV Group in $41 Billion Deal" (The Wall Street Journal, March 2001)