Lately Western Europe is a tourney of anticipation and waiting where players are evaluating merging options and calculating the competition’s next move.
The first domino may fall if Cable & Wireless plc and British Telecommunications plc join forces. Weeks ago the London companies acknowledged the possibility of merging, but have declined to comment further. Talks continue. Also eyeing Cable & Wireless is Deutsche Telekom of Germany.
Initial reports of Cable & Wireless and BT merging spurred speculation Deutsche Telekom, as well as AT&T Corp. and a few others, would-as a result-consider buying Mercury Communications telephone company, of which Cable & Wireless owns 80 percent. Competitive interest would require Cable & Wireless to divest Mercury and its 50-percent owned subsidiary, Mercury One-2-One.
Cable & Wireless’ majority ownership in Hong Kong Telecom is an open door for BT into east Asia, where landline phone service is scarce and expensive. BT would have opportunity to build wireless local loop systems and fulfill its global footprint.
“Talks have broken down several times in recent months over several stubborn obstacles,” reads an April 12 report from the American Embassy in London, that reports industry talk about a Cable & Wireless/BT merger. Difficulties include determining a price for Cable & Wireless, paying the $10 billion cost of buying out Hong Kong telecom’s minority shareholders-“which would have placed C&W outside of the reach of BT’s pocketbook”-and regulatory concerns, including Cable & Wireless divesting Mercury.
Analysts’ forecasts vary. Either way the first move may kick off a flurry of deals.
At a recent dinner in Frankfurt, Deutsche Telekom expressed interest in buying Cable & Wireless, or at least that the company wouldn’t rule out such a possibility. But Myles Denny-Brown, internal trade policy coordinator in the office of telecommunications at the U.S. Department of Commerce, believes a purchase of Cable & Wireless by Deutsche Telekom may be a bit premature. The German company, which privatized just over a year ago, has a “tremendous capital shortage,” said Denny-Brown. The company has long wanted to invest overseas, but was constrained as “part of the sovereign government of Germany and ran into substantial political opposition.”
Today, Deutsche Telekom is state-owned but the business is run autonomously.
Once the company sells 25 percent of its shares, scheduled for November, it may gain the capital needed to make such an investment as buying the U.K. company, said Denny-Brown. Deutsche Telekom plans to sell another 24 percent of the original company by 1998.
