C&W pulls plug on pounds 33bn merger with BT
Friday 03 May 1996
As news emerged of the collapse in the talks after the London markets had closed both sides claimed they had taken the initiative in terminating the proposed marriage.
Although the two companies were at pains not to apportion blame, it is clear that a huge gulf continued to separate them. Conflicting explanations as to why the talks had ended were emanating from the two camps.
BT made it plain that the talks had broken down on price saying that "the risks, at this stage, outweigh the prospective opportunities" of merging. This was taken to refer to the unrealistic price that C&W was demanding for its assets.
However, C&W said that the talks had foundered because of the "intractable" regulatory hurdles that a merged company would have faced in various parts of the world. The C&W board, headed by chairman Dr Broan Smith met in the morning to consider the progress the two side had made in the last four weeks.
After a meeting lasting several hours it concluded that too many obstacles remained and too much damage was being done to its own prospects by the uncertainty. It therefore informed BT that it was terminating the discussions.
A statement said that its board was unanimous that "the sustainable improvement in shareholder value that it had sought from the merger and the benefits to the company's partners and customers were not sufficiently certain in the light of the regulatory and partnership issues, to offset the cost of further delay."
Dr Smith added: "We had knocked hardly any of the hurdles down and some of them frankly looked intractable, in particular the regulatory issues in more or less any country you care to mention.
"In the meantime our partners were getting more and more restive. When you can't put a timescale on a deal or a value on the business you have got to call a halt at some stage."
C&W sources said that the biggest obstacles were regulatory complications in Germany where both BT and C&W have competing stakes in rival telecom businesses and BT's own dificulties with its UK regulator, Don Cruickshank of Oftel.
They also cited the difficult and lengthy regulatory passage the deal would have faced in the US because of BT's 20 per cent stake in MCI, the long-distance telephone operator. Because of the way the deal would have been structured as a reverse takeover of BT by C&W approval would have had to have been obrained from the Securities and Echange Commissio for the change in ownership of the MCI stake. C&W said this could have taken months.
However, BT sources denied that there had been any single "showstopper" suggesting that the talks had foundered because C&W was getting cold feet.
The reguatory position in Hong Kong , where C&W owns 57.5 per cent of Hongkong Telecom, was not sad to have been a major obstacle even though there has been much speculatio about how China would view the merger when its takes control of the colony next year.
C&W is expected to appoint a new chief executive in the next few days. Dr Smith said that the task now was to deliver opportunities that would produce significant value for shareholers as the group went forward.
Rod Olsen, who has been acting chief executive since last November following the ousting of the former chairman, Lord Young, and chief executive James Ross, said: "We spent the lst five months trying to construct a viable merger becaue we thought it was logical industrially and might create additional value for shareholders. Once we got into the detail it became clear that the problems facing the new company were greater than we had hoped."
Although news of the collapse in talks came too late to affect either company's share price in London, both stocks were marked down heavily in New York where they are traded in the form of ADRs.
C&W was down $2 to $21.25 - equivalent to a 53p fall in its closing London prie to 471p while BT was down $3 to $51.5 - equivalent to a 9p fall from its closing price in London of 352p.
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