Cable & Wireless wins battle for IDC
U.K. carrier paying a premium for Japan presence
By Bill Clifford, CBS MarketWatch
Last Update: 2:53 AM ET Jun 9, 1999
TOKYO (CBS.MW) - Britain's Cable & Wireless Plc stands to become the first foreign company to win a contested takeover battle in Japan. It may turn out to be a dubious honor, however, if the price of victory in acquiring Japan's International Digital Communications Inc. is too high, as some analysts expect.
Nippon Telegraph & Telephone Corp.'s decision Tuesday to withdraw its bid for IDC cleared the way for Cable &Wireless (CWP: news, msgs), which has countered every offer by the giant Japanese domestic carrier (NTT: news, msgs) with a higher bid of its own.
Cable & Wireless, one of the founding shareholders in IDC with a 17.7 percent stake, for two months has been pursuing greater control of Japan's only remaining independent international phone company.
Hooking up for a hub in Asia
Stephen Pettit, executive director for global business, told reporters here in May that IDC would be a "major hub" for Cable & Wireless as it tries to sign up big international customers.
Two major IDC shareholders said Wednesday they would sell their stakes to the U.K.'s second largest telecommunications company after NTT said it had no plan to raise its bid to match the latest offer from Cable & Wireless.
Toyota Motor Corp. (TOYOY: news, msgs) and Japanese trading company Itochu Corp. separately announced they would relinquish their 17.7 percent stakes, which would give Cable & Wireless just over 53 percent of IDC. It was not clear whether IDC's 138 shareholders would also accept Cable &Wireless's offer before the June 15 deadline.
Cable & Wireless on June 1 upped the ante for IDC to 110,577 yen per share from 107,372 yen. That topped a counteroffer tendered by NTT the day before, escalating a cross-border takeover battle almost never before seen in Japan.
Pricey connection
The Cable & Wireless offer values the struggling IDC at 69 billion yen ($570 million), one billion yen more than the NTT bid.
If the British offer exceeded what NTT thought was an appropriate value for IDC, it's way more expensive than what industry analysts think is the right price.
"The economics of buying a company of this caliber doesn't make that much sense," said Makio Inui, analyst at Nikko Salomon Smith Barney. "C&W's getting a company that has a fifth of the revenues and maybe as much as 10 times the debt of KDD," Japan's No. 2 carrier.
IDC is a privately held company whose market capitalization is 31.2 billion yen. Some analysts believe the company's appropriate value is 40 billion yen, 29 billion less than the Cable & Wireless bid.
Inui said, "The only way to justify this acquisition is that Cable & Wireless can claim it's establishing a presence in Japan."
It had no alternative. Japan's other two international phone companies, KDD Corp. and IDJ, have already hooked up with local partners.
NTT helped IDC save face--and jobs
Although much was made of the contest between NTT and Cable & Wireless, the Japanese phone giant was more the object of IDC's courtship than the other way around. It was IDC's board that sought an NTT counter to Cable & Wireless's initial bid.
IDC is likely to post zero profit this fiscal year because of plunging international call rates. Executives expressed extreme reluctance too turn over the reins of management to Cable & Wireless, fearing the British company would cut jobs. But C&W's Pettit has promised that all of IDC's 700 employees would keep their jobs.
NTT officials say the company will seek to build up its own international business alone rather than using IDC as a launching pad. Under Japanese deregulation, NTT will be allowed to offer international services starting July 1. |
