BT 1999 Annual Report Download - page 36

FINANCIAL REVIEW
35
Acquisitions, associates and joint ventures
Following completion of the MCI/WorldCom merger in
September 1998 and on the same day as the sale of the MCI
shares, BT acquired from MCI its 24.9% interest in Concert
for £607 million. Goodwill of £568 million arose on this
transaction. This goodwill is not being amortised and
Concert is to be transferred at a profit to the proposed global
venture with AT&T once we obtain regulatory clearances.
In March 1999, the group, through its 60%-owned
subsidiary BT Cellnet, completed the acquisition of Martin
Dawes Telecommunications Holdings Limited (MDT),
then the largest independent mobile telecommunication
services provider in the UK. The consideration totalled
approximately £130 million of which £90 million is deferred.
Vodafone, a major supplier to the MDT group, continues
to own 20% of MDT’s main operating subsidiary, although
it has, until September 1999, the right to sell its holding
to BT Cellnet. Goodwill of £160 million arose on
this acquisition and will be amortised over 10 years.
The group has invested £1,326 million in the 1999 financial
year on acquiring interests in associates and joint ventures
and providing their further funding. The most significant
investments were made in October 1998 in the Asia-Pacific
region. A 33.3% stake in Binariang of Malaysia was
acquired for £279 million and a 23.5% interest in LG
Telecom in the Republic of Korea was acquired for
£234 million. The goodwill element of these acquisitions
is being amortised over 20 years under the group’s new
accounting policy for goodwill adopted from the beginning
of this financial year. BT continued to share in funding the
development of its ventures, principally Viag Interkom of
Germany (£482 million) and Telfort of the Netherlands
(£103 million), in the financial year.
In the 1998 financial year, the group invested over
£1,650 million in acquisitions and further funding.
In September 1997, the group completed its acquisition
of a 26% interest in Cegetel of France for a total of
£1,029 million. Over £400 million was invested in other
European telecommunications companies in the year,
primarily in Germany, Spain and the Netherlands. The
goodwill arising on all of these acquisitions amounted to
£869 million out of a total of £937 million, which was written
off to reserves under the UK accounting policy in operation
for that and preceding years.
In the 1997 financial year, the group acquired the Rijnhaave
group, a Netherlands-based systems integration business,
in April 1996 and, in March 1997, completed the formation
of Telfort, a joint venture with the Dutch railways company,
to offer telecommunication services in that country. In
February 1997, BT agreed to acquire the 50% interest in its
Spanish joint venture, BT Telecomunicaciones, it did not
already own, thereby obtaining full control; this transaction
was completed in July 1997. The goodwill arising on these
acquisitions amounted to £166 million. The remaining
goodwill taken to reserves in the 1997 financial year
of £33 million mainly related to BT’s share of goodwill
arising on MCI’s acquisitions.
In April 1999, we completed the acquisition of a 20% interest
in ImpSat, a leading telecommunications company in Latin
America for approximately £90 million. Also, in May 1999,
we acquired a 20% interest in SmarTone of Hong Kong, a
leading provider of digital mobile communications services,
for approximately £240 million.
On 25 April 1999, BT, together with AT&T, announced
that they would acquire a 30% interest in Japan Telecom.
The consideration will be about £1.2 billion. BT will have
an economic interest of 20% with both companies jointly
managing the investment. BT Communication Services
will be integrated into Japan Telecom. Subject to
regulatory clearances, the transaction is expected to
close by autumn 1999.
Global venture with AT&T
The proposed global venture with AT&T for our trans-
border telecommunications activities will be jointly owned.
We will be transferring to it the majority of our cross-border
international networks, our international traffic, our
business with selected multinational customers and our
international products for business customers, as well as
Concert. The formation of this venture is subject to
regulatory clearances which we expect to obtain later in
1999. Following the formation of the global venture, total
turnover, including our share of the ventures’ turnover will
increase, although group turnover, excluding this share,
will reduce as a consequence of these activities being
transferred.