BT 1999 Annual Report Download - page 77

NOTES TO THE FINANCIAL STATEMENTS
76
19. Fixed asset investments (continued)
(a) Subsidiary undertakings, associates and joint ventures
Details of the principal operating subsidiary undertakings, joint ventures and associates are set out on pages 102 and 103.
1999 1998
(b) Associates and joint ventures £m £m
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Associates:
Goodwill 227 –
Share of other net assets 191 143
Total – associates 418 143
Joint ventures:
Goodwill 409 –
Loans 247 151
Share of other net assets 426 99
Total – joint ventures 1,082 250
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Net book value at 31 March 1,500 393
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(c) MCI Communications Corporation
In September 1994, the company completed the acquisition of a 20% equity interest in MCI (a major carrier of long-distance
telecommunications services in the United States) represented by a holding of 136 million unlisted Class A common shares,
whereupon MCI became the group’s most significant associate. On 3 November 1996, the company entered into a merger
agreement with MCI whereby the group would acquire the entire share capital of MCI, not already owned. On 21 August 1997,
the terms of the merger agreement were modified. On 1 October 1997, WorldCom announced its intention to offer shares in its
company to MCI shareholders as an alternative to the proposed merger and, following an improved offer from WorldCom on
9 November 1997, the company agreed with WorldCom and MCI that it would support the proposed merger of MCI with
WorldCom. On 15 September 1998, MCI and WorldCom merged to form MCI WorldCom.
On completion of the merger, the company sold the group’s holding of 136 million unlisted Class A common shares in MCI to
WorldCom for US$51 per share in cash. The consideration of US$6,936m was equivalent to £4,133m at the exchange rate ruling
on 15 September 1998. The group also held 0.7 million listed common shares in MCI, most of which were purchased in November
1995. These shares were exchanged for MCI WorldCom common shares on completion of the merger and subsequently sold in
the market for £26m.
As a consequence of the termination of the company’s merger agreement with MCI and the company’s agreement with
WorldCom and MCI, the group ceased treating MCI as an associate on 31 October 1997. The group’s share of its associates’
results for the year ended 31 March 1998 included a loss before tax of £27m for its share of MCI’s results up to that date
(1997 – £175m profit).
At 31 March 1998, the group’s investment in MCI was stated at £813m. Goodwill, amounting to £2,214m written off to group
reserves in prior years in respect of this investment, was accounted for at the completion of the MCI/WorldCom merger in
determining the profit on the sale of the shares which the group recognised (note 6).
In the period 1 April 1997 to 31 October 1997, the group’s turnover with MCI amounted to £108m (1997 – £134m) and in the same
period the group purchased £56m (1997 – £87m) in services and products from MCI.
(d) Binariang and LG Telecom
On 9 October 1998, the group completed its acquisition of a 33.3% interest in Binariang, a leading Malaysian telecommunications
company. And on 14 October 1998, the group completed its acquisition of a 23.5% interest in LG Telecom, a major Korean mobile
telecommunications company.
The acquisition of the interests in Binariang and LG Telecom comprised:
Binariang LG Telecom
£m £m
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Group share of original book value of net assets 60 98
Fair value adjustment to achieve consistency of accounting policies (9) (58)
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Fair value to the group 51 40
Goodwill 228 194
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Total cost 279 234
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