Contel Moves to Cancel Its Merger Pact With Comsat

Contel Corp. moved Tuesday to terminate its $2.5-billion merger agreement with Communications Satellite Corp. because of recent government actions, including an order that Comsat refund $62 million in excess earnings.

Contel, an Atlanta-based telephone company, said it believes that the interests of Comsat, Contel and their shareholders would be best served “if the agreement were terminated by mutual consent.”

Contel said if the refund order and other actions remain pending before the Federal Communications Commission, “the conditions of the merger of the two companies . . . will not be satisfied.”

Comsat, a quasi-governmental telecommunications company, responded that it will meet with Contel promptly, and repeated its intention to challenge the refund order.

Shareholders of both companies approved the merger on Feb. 9. The deal, involving a stock swap valued at about $2.5 billion, has been awaiting FCC approval.

Veronica M. Ahern, a Washington communications lawyer, said: “I think Contel found out more about Comsat than it knew before . . . and decided they didn’t want to go forward.” The FCC’s Common Carrier Bureau, after a review of Comsat’s rate structures, on April 6 tentatively ordered the company to refund $62 million to its customers.

The FCC said Comsat earned more than its authorized profit margin of 12.48% on various satellite and earth station services between 1983 and 1986.

Comsat has said it will challenge the order, and repeated in its statement Tuesday that the order is “unjustified and unwarranted both on the facts and the law.”

But Ahern said the refund order “leaves road open to an even greater liability than even $62 million and will take a long time and massive legal fees to fight that battle.”