The smoldering saga of the talks between British Telecommunications Plc and Cable & Wireless Plc, which most believe will sooner or later lead to a merger of the two companies, burst into flame last Friday after the finance director of Deutsche Telekom AG disclosed that the German state monopoly was considering whether to make its own bid for Cable & Wireless. The story went out on Reuters in mid-evening, and was also reported by Dow Jones & Co, but apparently failed to win the Financial Times’s seal of approval as a worthwhile story. The considered consensus was that Deutsche Telekom was so burdened with debt – over $60,000m – that it would stretch its balance sheet to breaking point to proceed to a bid, the news increased the pressure on British Telecom to bring the talks with its UK rival to a successful conclusion, and added a fair bit to the price it is likely to have to pay (in the form of a special dividend to Cable & Wireless shareholders). The UK government, which still holds a veto on any takeover of Cable & Wireless it does not like, in the form of a golden share, would be expected to favor British Telecom over Deutsche. Deutsche Telekom finance chief Joachim Krske said at the now-famous dinner that the German had made unofficial inquiries about a takeover of Cable & Wireless but emphasized that no negotiations had yet been held. We are involved in sensitive pre-exploratory talks. But there have been no official discussions, he said. Telekom considered Britain crucial to its plans to broaden its presence in Europe and the company was trying to determine the best way to enter the British market, he said. The English market is a dominant market in Europe through which a lot of traffic streams are routed. We want to be present in this region alone or with partners, Krske said. Despite that overstretched balance sheet, Krske said that Telekom expected to spend the equivalent of $6,500m to $13,500m on acquisitions – around half its expenditure for technical investment. Asia is a key focus and We will soon announce plans for further substantial investments in Asia, not in one country but in several, he said. He would not deny a Bangkok newspaper report that he planned to take a 25% stake in the Thai computer and communications group Shinawatra Ltd, but would not elaborate on any of the other deals. Shares in Cable & Wireless jumped 19p at the opening and at midday were up 14 pence to 540 pence, but some reacted negatively – This after-dinner expression of putative interest has only the unfortunate effect of increasing the downside on C&W shares, if Telekom decides not to bid, said one analyst, who declined to be named. Neither British Telecom nor Cable & Wireless wanted to make any comment on what Krske had said. The finance chief would not say whether or not his firm might go after Cable & Wireless alone, or as part of its Global One alliance with France Telecom and Sprint Corp; earlier this month France Telecom, as reported, said that neither it nor Deutsche Telekom, nor their Atlas joint venture, had any interest in acquiring the 80%-owned Mercury Communications Ltd Cable & Wireless British subsidiary.
