The Wall Street Journal Interactive Edition -- September 23, 1998
Telecom Italia Abandons Talks
To Acquire Cable & Wireless
By GAUTAM NAIK and MARIA STURANI
Staff Reporters of THE WALL STREET JOURNAL
Telecom Italia SpA held preliminary talks last month to acquire Britain's
Cable & Wireless PLC, but the discussions stalled after stock-market
turbulence caused the share price of both companies to decline
significantly, said people familiar with the talks.
The companies are no longer discussing a potential acquisition, although the
talks may be revived if the share prices rise, said people close to the
companies. The talks were first reported in the Italian media.
Telecom Italia's chairman, Gianmario Rossignolo,
and the company's chief financial officer,
Fulvio Conti, met with Cable & Wireless's chief
executive officer, Dick Brown, and
Lebanese-French financier Samir Traboulsi in
Monte Carlo in August to discuss the deal. The discussions were preliminary
and neither side discussed an acquisition price or other details.
'Scarce Enthusiasm'
"The acquisition will not be discussed in [Telecom Italia's] board meeting
[which will be held on Friday]," said a person familiar with the talks, who
added, "It was stalled due to the share prices' fall and to the scarce
enthusiasm coming from some important Telecom Italia shareholders."
A spokesman at Telecom Italia denied there's a project to acquire Cable &
Wireless, but said "Mr. Rossignolo and Mr. Conti met with a lot of people
over the summer."
The talks stalled due to a sharp decline in Cable & Wireless share price,
which would have provided a much lower valuation of the company. At its
Tuesday share price of 520 pence ($8.74), Cable & Wireless has a market
capitalization of about 12.23 billion pounds ($20.55 billion), although a
potential acquirer would likely pay a premium. The price of Cable & Wireless
shares has dropped 35% since the beginning of August.
The acquisition talks grew out of an alliance that the two companies struck
in early April. Both Telecom Italia and Cable & Wireless aspire to become
global players, and are under extra pressure following the $11 billion
alliance between British Telecommunications PLC and AT&T Corp.
An acquisition of Cable & Wireless is opposed by some shareholders of
Telecom Italia, who believe the company should concentrate first on setting
a clear strategy for the future and decide whether to invest in new
telecommunications technologies or stick to its traditional business.
Trouble in Hong Kong
Cable & Wireless, which owns key assets in Hong Kong and the Caribbean, has
long been considered a prime acquisition target. But its stock price has
dropped recently, partly because its chief holding -- a 54% stake in Hong
Kong Telecommunications Ltd. -- faces increasing competition at home. Volume
growth in phone traffic has fallen on the China route, said analysts, and
rivalry in the international calling business will intensify when new rivals
begin to enter in January. Some cost-cutting initiatives have run into
trouble. On Tuesday, Hongkong Telecom backed off a plan to cut employees'
wages by as much as 10% in the wake of widespread protests.
"The question is, with Hongkong Telecom coming under economic and
competitive pressure, is this a good time to buy Cable & Wireless?" said
Louise Cox, an analyst at Robert Flemings Securities Ltd., London.
Others, however, note that Mr. Brown, Cable & Wireless's chief executive,
has made significant strides in consolidating the carrier's position in
Britain, and may now be more willing to sell the company if the stock price
revives. In the past, Cable & Wireless has held discussions with Bell
Atlantic Corp. and AT&T. A Telecom Italia-Cable & Wireless combination would
also be potent, controlling a large chunk of international traffic in Asia,
Europe, Latin America and the Caribbean.
Telecom Italia's board meets on Friday to approve first-half results and
discuss the details of how the already announced alliance with Cable &
Wireless will be structured. Although Cable & Wireless is contributing more
assets than its Italian partner, it is still unclear which company will
ultimately control their venture.
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