British Telecommunications Plc v Her Majesty's Revenue & Customs

Facts

The appellant, British Telecommunications plc, was a publicly quoted UK-resident telecommunications company which had acquired a 20 per cent shareholding in MCI Communications Corporation, a US telecommunications provider, in 1994. In 1996 the two companies negotiated a merger of their operations, and on 3 November 1996 entered into a merger agreement with Tadworth Corporation, a wholly-owned Delaware subsidiary of the appellant, under which MCI would merge into Tadworth and MCI's other shareholders would receive cash and shares in the appellant. That agreement was amended by agreements dated 14 February 1997 and 21 August 1997, by which date the merger valued MCI shares at approximately $30–31. Section 7.1(f) permitted either party to terminate on receipt of a Superior Proposal, subject to payment of an Alternative Transaction Fee of $450m and expenses of up to $15m. Worldcom Inc offered $41.50 per MCI share on 1 October 1997 and, after a rival approach from GTE, raised its offer on 9 November 1997 to a value of $51 per share. By a termination agreement of the same date between Worldcom, the appellant and MCI, the merger agreement was terminated and Worldcom paid the appellant $450m and $15m of expenses on 12 November 1997. The Revenue assessed the $450m, £263,723,000 in sterling, to corporation tax as a chargeable gain.