BT decides it's good to talk

SHARES in telecoms group Cable & Wireless had a lively ride last week after news broke of the group's secret takeover talks with its rival, British Telecom.

While caught out on the timing of the talks, the stock market was less surprised that the two groups had been contemplating such a move, given the strategic logic in joining forces to create a global telecommunications empire.

For BT in particular, expansion to greener pastures outside the heavily regulated UK market is tempting. The specific lure of Cable & Wireless is its 57.5 per cent stake in Hong Kong Telecom, a highly profitable business that contributes the lion's share of Cable & Wireless profits and whose control would give BT a valuable stake in the fast-growing Asia-Pacific market.

Price appears to have been the main issue on which the talks ran aground - the two companies were unable to reach agreement on a valuation to satisfy both sets of shareholders. The problem was complicated by the proposed method of merger, a reverse takeover with Cable & Wireless buying its bigger rival, BT.

Such a move would be a neat way of sidestepping a full-scale offer for Hong Kong Telecom, which would have added pounds 6bn to the estimated pounds 10bn merger price. C&W buying BT would also reduce the risk of overseas governments cancelling existing licences if C&W changed hands.

But although it has manoeuvred around some of the obstacles, a merger between the UK's two largest telecom companies would also run into a regulatory minefield, not least in the UK.

With the beady eye of the telecom regulator, Don Cruickshank, fixed upon BT's dominant market share, it is a certainty that any deal would require the disposal of Mercury Communications where C&W has an 80 per cent stake. Nor would BT be allowed to retain C&W's stake in the Mercury One-2-One mobile phone business alongside its existing Cellnet operation.

Mercury may have failed to make a big dent in BT's total market share, but it remains BT's only significant rival in the UK and the regulator would be keen to see its position secured, whether it was acquired by another operator - US group AT&T has been mentioned as a possible suitor - or whether it was floated off.

If merger talks are renewed, the outcome could be a more radical shake-up in BT's structure, which would give it more scope to expand overseas.

"It is clear that both companies have recognised the logic of such a deal. BT needs to break out of its regulatory log-jam, while Cable & Wireless is too small," said one analyst.

Floating all or part of BT's UK business is one possibility that is mooted although, says competition lawyer David Aitman at Denton Hall, this would be scrutinised by Oftel. "BT is the primary provider and owns the network. Such a move might dilute its public responsibility in the eyes of the regulator."

Nobody would underestimate the complexities of agreeing a deal to satisfy all parties, not least shareholders. "The news of the merger talks is not a signal that C&W is in play," says analyst Martin Mabbutt at brokers James Capel. "Rather, it demonstrates that C&W cannot be taken out unless it wants to be."

How BT and C&W compare


No of employees 125,000 41,000

Forecast pre-tax profits pounds 3bn pounds 1.45bn including

to March 1996 exceptionals

Markets Operating in more Operating in more

than 30 countries, than 50 countries

with main areas in including Hong Kong

Europe, Pacific rim, Europe, Caribbean

and via partner and Americas

MCI in America

Market capacity pounds 22.3m pounds 10.3m

No of shareholders 2.5 million 175,000

A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
Richard Dawkins dedicated his book 'The Greatest Show on Earth' to Josh Timonen
newsThat's Richard Dawkins on babies with Down Syndrome
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
ebooksAn evocation of the conflict through the eyes of those who lived through it
Dinosaurs Unleashed at the Eden Project
Arts and Entertainment
Life and Style
This month marks the 20th anniversary of the first online sale
techDespite a host of other online auction sites and fierce competition from Amazon, eBay is still the most popular e-commerce site in the UK
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

AIFMD Business Analyst / Consultant - Investment Management

£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...

Business Analyst Solvency II SME (Pillar 1, 2 & 3) Insurance

£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home