Britain’s BT Group to Buy Infonet
BT Group, Britain’s largest phone company, will buy Infonet Services Corp. for $965 million to add a data network spanning more than 180 countries.
The $2.06-a-share buyout will be completed in the first half of 2005, BT said. Phone companies who own 97% of Infonet’s voting rights, including Swisscom, Royal KPN, Telefonica and TeliaSonera, agreed to sell their stakes, BT said.
The purchase will give BT Chief Executive Ben Verwaayen inroads with customers that have global operations such as Nestle, the world’s largest food maker.
El Segundo-based Infonet will enable BT to boost sales of services such as Internet calling and network security as revenue declines in the fixed-line phone business.
For BT, “strategically it’s a good move -- they are gaining a large international client base,” said Philip Scholte, an analyst at Effectenbank Stroeve in Amsterdam. “Still, BT is expanding into a market known for price pressure and fierce competition.”
Shares of Infonet fell 7 cents to $2 on the New York Stock Exchange. They had surged 14% last week, after the acquisition talks were first reported. BT shares fell 43 cents to $35.57, also on the NYSE.
“This is completely a part of BT’s transformation into a company that specializes in IT and networking services,” Verwaayen said. “This is a deal that is in a way old fashioned; it pays for itself by synergies.”
BT expects savings of $150 million after three years from cutting down on its use of other carriers’ networks, scrapping overlap between the companies’ operations and job cuts in administrative functions, Verwaayen said. The company hasn’t yet determined how many jobs will need to be eliminated above the rate of attrition, he said.
London-based BT raised the equivalent of about $575 million, the cost of the deal excluding Infonet’s cash balance of $390 million, by selling units this year, Verwaayen said.
The services Infonet provides fall into a category that Verwaayen, 52, calls BT’s “new wave” revenue. BT’s sales in that category climbed 32% to 936 million pounds ($1.73 billion) in the June quarter from a year earlier. Revenue from BT’s fixed-line business fell 6%.
Infonet customers also include Hewlett-Packard Co., the world’s second-biggest personal-computer maker, Hilton Hotels Corp., NATO and the European Central Bank.
Swisscom and Royal KPN each said they would receive $170 million for their stakes. Stockholm-based TeliaSonera will receive about $194 million for its 20% stake in Infonet. Madrid-based Telefonica agreed to sell its 14.5% Infonet interest for $138.8 million.
Infonet had $379.2 million in cash and short-term investments as of July 2, the end of its fiscal first quarter, and $3.74 million of debt.
The company had a net loss of $66.6 million in the last fiscal year on a 4.9% sales drop to $622.4 million. Infonet, whose revenue rose 5.7% from the previous year in the fiscal first quarter, had been hurt in part by higher costs for using other phone companies’ networks.
The Infonet deal will build on another acquisition BT is making, the $225-million purchase of Reuters Group’s Radianz network unit announced in October, said Andy Green, CEO of BT’s Global Services business.
