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September 30, 1998

WHAT LIES BEHIND NORTEL SALE OF ICL SHARES?

By CBR Staff Writer

Why did Nortel Networks (the new brand name of Northern Telecom Ltd since its Bay Networks Acquisition) sell its 9.9% stake in ICL Corp to Fujitsu for a bargain 50m pounds when it could have picked up two or three times that amount when ICL is floated on the stock market in the year 2000? The most obvious explanation is that Nortel is skeptical about the date for an IPO – as ICL’s market debut has been frequently promised in the past. The official explanation for the sale is that Nortel wants to focus its investments on the global telecommunications market. In addition, Nortel may well have a takeover target in sight that has made it desperate to raise cash. Judging ICL’s market capitalization is difficult because the company is saddled with unprofitable long-term maintenance contracts. With revenues of 2.4bn pounds and income of 30m pounds, ICL will certainly be worth well over 1bn rather than the 500m pound valuation placed on its by the Nortel deal. One possibility is that Nortel has a deal lined up with Fujitsu that encouraged it to surrender its holding for a modest price. But the big question is what Fujitsu will do with ICL now it has 100% ownership? An obvious course of action would be to merge ICL with its Amdahl subsidiary. Amdahl would complement ICL with a strong presence in the US and create a worldwide services group whose IPO would be eagerly awaited on world markets.

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