BT 1997 Annual Report Download - page 48

NOTES TO THE FINANCIAL STATEMENTS
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12. Fixed asset investments (continued)
(b) MCI Communications Corporation
The group’s most significant associated undertaking is MCI Communications Corporation (MCI), the second largest carrier of
long-distance telecommunication services in the USA, in which it holds a 20% interest.
On 3 November 1996, the company entered into a merger agreement with MCI whereby the group will acquire the entire share
capital of MCI, not already owned. On 15 April 1997, the company’s shareholders approved the merger at an extraordinary
general meeting, MCI shareholders having given their approval on 2 April 1997. Completion of the merger is subject to certain
conditions, including the required regulatory approvals. The company expects to complete the merger in Autumn 1997 at which
time the company will change its name to Concert plc. On completion MCI shareholders (other than the company, MCI or their
respective subsidiaries and MCI shareholders who successfully exercise statutory dissenters’ rights of appraisal) will be
entitled to receive 5.4 ordinary shares of the company and $6 in cash for each MCI common share. MCI shareholders will not
be entitled to the company’s special dividend nor the final dividend for the year ended 31 March 1997. They will be entitled to
the interim dividend for the year ending 31 March 1998 and all subsequent dividends provided the merger is completed before
31 March 1998. Up to 3,400 million ordinary shares of the company will be issued on completion of the merger and the cash
consideration is expected to total a maximum of £2,300m, at $1.64 to £1, the rate ruling at 31 March 1997, with the final
amounts being determined by the number of outstanding MCI shares at completion. The merger will be accounted for under the
acquisition method of accounting.
During the year ended 31 March 1997, MCI made certain acquisitions of subsidiary and associated undertakings and the
group’s share of goodwill arising from these, amounting to £21m, has been written off to reserves under the group’s accounting
policies.
At 31 March 1997, the group’s 20% share of the net assets of MCI, calculated in accordance with group accounting policies,
amounted to £834m (1996 – £804m). This value comprised tangible fixed assets of £1,238m (1996 – £1,179m), intangible fixed
assets of £115m (1996 – nil), fixed asset investments of £209m (1996 – £166m) and other assets of £677m (1996 – £657m),
from which are deducted borrowings of £721m (1996 – £524m) and other liabilities of £684m (1996 – £674m). In the year ended
31 March 1997, the group’s turnover with MCI amounted to £134m (1996 – £92m) and the group purchased £87m (1996 –
£77m) in services and products from MCI.
The company’s holding in MCI at 31 March 1997 comprised 136 million (1996 – 136 million) unlisted common shares and
0.7 million (1996 – 0.7 million) listed common shares. The listed common shares were purchased in the market in November
1995 at a cost of £12m and had a market value of £16m (1996 – £14m) at 31 March 1997.
(c) Other investments
Other investments include ordinary shares of the company, with a net book value of £20m (1996 – £9m) and a market value of
£28m (1996 – £12m), held in trust for the Long Term Remuneration Plan and the Performance Share Plan (note 26). Also, in the
group balance sheet at 31 March 1997, a listed investment was held with a book value of £72m and a market value of £61m.
(d) Subsidiary company acquisition
In February 1997, the company entered into an agreement to purchase from Banco Santander SA its 50% holding in the share
capital of BT Telecomunicaciones SA, a joint venture between a wholly owned subsidiary of the company and Banco Santander
SA, for the equivalent of £76m. The transaction is to be completed before the end of 1997.
(e) Other related party transactions with associates
In the year ended 31 March 1997, the group’s turnover with its other associated undertakings amounted to £23m and the
group purchased £30m in services and products from these undertakings.