ITT Corp and Compagnie Generale d’Electricite duly completed their agreement on Tuesday to merge their telecommunications and computer interests in a new entity registered in Amsterdam, Netherlands that combines the telecommunications equipment manufacturing operations of the two companies, creating the world’s second largest telecommunications company. ITT agreed to exclude its 24% stake in STC Plc here, which is valued at $250m, and as a result will receive only $577m from CGE, much less than it had looked for. An early sale of the ITT stake in STC is now highly likely: fortunately, STC shares were a strong market in 1986, rising to around 180 pence from a start-point of 98 pence, and the UK company will no doubt hope that ITT goes for a placing or a secondary issue for the potentially threatening stake. ITT also ends up with the originally envisaged 37% of the new venture rather than the revised 35%. CGE starts out with 55.6% and management of the new company, and the only partner apart from Societe Generale de Belgique, which is taking 5.7%, is the French bank Credit Lyonnais, taking 1.7%. All told, ITT will benefit by $1,250m from the transaction, including repayment of ITT intracompany debt of about $350m, and a 37% interest in a new entity valued at $1,600m. In addition, approximately $800m in debt on the books of the ITT companies now a part of the joint venture has been removed from ITT’s balance sheet. The joint venture will report pro forma 1986 sales of an estimated $12,500m, and has total assets of some $9,000m. With operations in more than 75 countries, the venture employs 164,000 workers, including about 99,000 employees from former ITT businesses. It consists of ITT’s worldwide telecommunications and business systems operations, ITT’s European-based consumer electronics interests, CGE’s Alcatel telecommunications business and 65% of the stock of CGE’s Cables de Lyon unit. Compania Telefonica Nacional de Espana is still keen on participating in the venture, but only if the future of the two ITT susbidiaries in Spain, in which it holds stakes of just over 20%, can be resolved to its satisfaction. Although the partners insist that the STC stake was excluded not to save CGE money but because it was too small for CGE to exercise any control over STC, which is of course a competitor, its exclusion considerably eases the cash squeeze on CGE, which hopes to be privatised shortly. Provisionally called Teleglobal Communications NV, the new firm will be run from Brussels.
