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PARTNERSHIP WITH STC GIVES NORTHERN TELECOM ITS LONG SOUGHT-AFTER FOOTHOLD IN EUROPE

Those determined to know the identity of the buyer of ITT’s 24% stake in STC Plc before they went home had to stay at their desks late into the evening on Tuesday, and with a final close of 7pm UK time, we had to go with a speculative story that turned out to be correct. And when the story did come – Northern Telecom Ltd with a handsome premium of 33 pence a share over the 307 pence closing price in London and $750m all told – there were one or two twists in the tale. Most notably, STC is taking a 40% stake in Northern Telecom Plc, the size of which is undisclosed, but which has been a keen disappointment to the company, so much so that a former managing director of the computer side of the business tried to put together a management buyout. The company currently employs 700 people here in the UK, but in October 1983, it announced ambitious expan-sion plans which looked for 830 employees by the end of 1984, and involved investment of nearly UKP10m reorga-nising and expanding its UK businesses around a new 100,000 square foot plant in Hemel Hempstead. The Vienna large-scale multi-microprocessor office automation and business computing system has not been the runaway success for which the company had high hopes, but the keenest disappointment has been the complete failure to win any public telephone exchange business from British Telecom – the System Y contract went to Thorn Ericsson, and even the one-off special application exchange contracts – toll-free 800 numbers and so forth, have gone to AT&T-Philips. All of which might have been enough to cause the company to throw in the towel on the UK market. But the Canadians are made of sterner stuff, and of late, things in the UK have been looking up a little. The DMS public exchange has been the number one winner of new business in the US with the regional Bells since the break-up, and that, coupled with the fact that British Telecom didn’t use the things, helped Mercury Communications to decide to use the Northern Telecom switch with System X as its secondary switch. With Mercury likely to be the major beneficiary of increasing pressure for much stiffer competition for British Telecom, so the Mercury link could be the start of something quite big. The other surprise revealed in the announcement is that Northern had quietly assembled a 3.8% stake in STC ahead of the deal with ITT. The agreement marks Northern’s first significant breakthrough in Europe after four years of knocking on doors: it was a contender for ITT’s European telecommunications businesses that went to CGE control and it lost out on CGCT to Ericsson. And it has not made any headway in Italy. On the product front, there are many unanswered questions: Northern Telecom is reportedly uninterested in taking an active role in ICL, which has shored up STC’s figures of late without ever looking like an integrated part of the company. Makes no senseYet it makes no sense for STC to have 100% of ICL and 40% of Northern Telecom’s UK computer business, such as it is: will this be merged across Europe with ICL? The other major conflict is in PABXs: Northern Telecom’s SLs are built under licence by GEC, which is merging its telecommunications business with Plessey, which has its own very successful PABX line. GEC says that it thinks it would be great for the new company to continue to sell both lines of PABX, but that looks pretty crazy to out-siders. At the same time, STC builds some former ITT PABXs under licence, but its ICL arm has invested a lot of emotional capital in its commitment to the SX2000 from Mitel, 51%-owned by British Telecom. The only solution that seems to make sense would be for GEC to abandon the SL exchanges and go with the Plessey ISDX alone, for ICL to abandon the Mitel switch for the Northern Telecom, which would then become the flagship for the STC-ICL group. But it is not at all clear that all parties agree to this solution. On the collaborative front, the stress is on transmission equipment, particularly for Integrated Services Digital Networking, and on intelligent and synchronous multiplexers.

Although Northern Telecom’s statement that it has no intention at present of adding to its STC stake or making a bid for the company should probably be believed, it has not prevented the City from hyping the idea of a full bid, which speculation in turn raises the issue of ICL, in which Northern Telecom is apparently uninterested. STC shares put on 8p to 317p yesterday in a very sick-looking market. The pact is of course subject to the usual UK regulatory approvals, and while no trouble is expected, ITT agreed to buy back the shares if it is not given.

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CBR Staff Writer

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