ITT and CGE merge to form telecom giant

Press, 12 January 1987, Page 27

ITT and CGE merge to form telecom giant

NZPA-Reuter Paris ITT of the United States and France’s State-owned Compagnie Generale d’Electricite (CGE) have formally merged their telecommunications interests to form the world’s second largest telecommunications giant. The new Franco-Ameri-can venture is second in the business only to the mammoth U.S. ATT company, which is itself involved in a battle to take over France’s second largest telecommunications firm.

ITT and CGE presidents Rand Araskog and Pierre Suard set the seal on the joint venture by signing in Brussels an agreement to set up Teleglobal Communications NV, a grouping of worldwide interests they described as second only in size to those of ATT.

The creation of TCNV ended six months of thorny negotiations to merge scores of ITT telecommunications units across the globe with CGE subsidiary Alcatel, which controls 84 per cent of the French market But French hopes of bringing several European partners into the deal have not so far been fulfilled. An eleventh-hour attempt to sell Spanish firm Telefonica a SUS3OO million stake in the business failed only hours before the signing. CGE, which has a 55.6 per cent controlling stake in the new venture, refused to relinquish enough decision-making power to persuade the Spaniards to invest, Telefonica said.

Under the agreement CGE will have to hand ITT more than half of the

SUS9O2 million cash to be paid to the U.S. firm for putting its telecommunications assets into TCNV.

ITT has a 37 per cent stake in the venture. Belgian holding company Societe Generale de Belgique paid SUS2SO million for a 5.7 per cent stake and France’s state-owned bank Credit Lyonnais SUS 73 million for 1.7 per cent in the company. Financial analysts said CGE’s failure to rally other European firms to the deal is expected to incur it additional costs to revamp loss-making ITT subsidiaries and pay for further research on HTs new System 12 public telephone switching equipment But CGE officials say the Amsterdam-based company, which will have a start-up staff of about SUSISO,OOO and operations in 75 countries, will put the French in a strong position to fight for a bigger slice of the increasingly competitive telecommunications market

The venture has set the stage for an international take-over battle for France’s second largest

public telephone switching company, Cie Generale de Construction Telephonique (CGCT).

Both Washington and Bonn have been putting pressure on the French Government to sell a 20 per cent share in the company to leading contenders, ATT and West Germany’s Siemens Ag.

The French Government has held up approval for more than a year on a draft accord signed by ATT to take over CGCT and gain access to its 16 per cent share of the French market

Reports that the French were leaning towards their European partners irritated the Americans and prompted moves by the U.S. authorities last week to bar sales there of telecommunications equipment by overseas suppliers.

But Siemens, which aims to become a major supplier to the U.S. market, said that it would not back down in its bid for a 20 per cent stake in CGCT.