Communications Venture Set by ITT, French Firm
ITT Corp. and Compagnie Generale d’Electricite, a state-owned French conglomerate, announced agreement Wednesday to combine their telecommunications businesses in a joint venture that they said would be the world’s second-largest telecommunications company.
ITT said it would receive about $1.8 billion in cash for its contribution to the joint venture, a sum that includes repayment of about $350 million in debt.
In addition, the joint venture would assume debt on the balance sheets of the companies to be included in the venture, an amount estimated by analysts at $1.3 billion.
Retains 30% Ownership
The venture, 30% owned by ITT, would have annual revenue of about $9.6 billion a year and activities in 75 countries, the companies said. That would make it second in size only to American Telephone & Telegraph.
The deal requires the approval of the French government. Generale d’Electricite, or CGE, said a decision by the authorities was expected by the end of July.
ITT’s stock rose $3.75 a share to $56.75 in consolidated New York Stock Exchange trading, reflecting investors’ happiness with the tentative deal.
The agreement includes more properties than had been rumored when talk of the joint venture arose last week. It goes beyond ITT’s telephone switching equipment to include transmission equipment as well as all of ITT’s business systems, including telephones, private branch exchanges, computers, terminals, printers and other office equipment.
Although ITT would own 30% of the joint venture, the deal marks the multinational conglomerate’s departure from day-to-day control of one of its oldest and biggest businesses.
ITT was founded in 1920 as a phone company and began making telecommunications equipment a few years later.
ITT also owns Hartford Insurance Group, Sheraton Hotels and Rayonier forest products and has operations in financial services and defense equipment.
Analysts expressed pleasure with the announcement, even though it seemed to represent the end of ITT Chairman Rand Araskog’s failed ambition to make telecommunications the engine of ITT’s growth.
“I’m impressed by the amount of money they’re able to get for the subsidiary, which has a lot of promise and has yet to deliver,” said Carol Neves, a securities analyst who follows the firm for Merrill Lynch & Co.
Phua Young, an analyst for Shearson Lehman Bros., said it made sense for ITT to throw its computers, telephones and other office equipment into the deal along with the European-based central-office phone switch business.
Has Lost Money
Those non-switch operations have “been losing money for the past couple years and will again lose money this year,” Young said. “It’s like a big headache being removed from your system all at one time.”
In addition to CGE, France’s state-owned telecommunications company, the Belgian banking group Societe Generale de Belgique and the Spanish telephone company Telefonica also intend to participate, the announcement said.
The newly created company would include ITT’s holdings in telecommunications and business systems companies in Europe, the United States, Africa and the Middle East, Latin America, Canada and the Asia-Pacific region. ITT would also contribute its European-based consumer product companies.
CGE will contribute all of its Alcatel telecommunications businesses.
The new company, still to be named, would be managed by CGE, with Araskog serving as chairman.
The $350 million in debt that will be paid off as part of the $1.8-billion payment to ITT consists of money owed to various units of ITT by the units that are being placed in the joint venture.
Neves said ITT officials told her the joint venture would assume debt listed on the balance sheets of the various ITT units consisting of $840 million in long-term debt and $500 million in short-term debt.
