Shareholders accept C&W offer for Japanese telecom

Two of International Digital Communications's largest shareholders said yesterday they will accept an offer from Cable & Wireless for their shares of the Japanese telecomms carrier, ending a three-month contest with Nippon Telegraph & Telephone (NTT) that was more play acting than a real bidding war.

Toyota Motor Corp and trading company Itochu Corp said they will both accept C&W's tender offer of 110,577 yen ($A1407) per share for the Japanese international telecomms operator. Toyota, Itochu and C&W each own 17.7 per cent of the company.

The shareholders' decision follows NTT's announcement on Tuesday that it will not raise its bid for International Digital, leaving C&W the highest bidder. According to a company official, privately-held International Digital had revenues of about 75 billion yen ($A955 million) last year.

The C&W deal, expected to close June 15, according to officials, marks the first foreign buyout of a Japanese telecomms operator. C&W is part of a wave of carriers redoubling their efforts in Japan in response to recent telecomms market deregulation here. With the International Digital purchase, C&W will have a beachhead in the world's second largest telecommunications market that will fill out the company's existing operations in Europe and the US.

Though much of International Digital's management supported an NTT buyout, an official yesterday said he has faith in C&W.

"I had good reason to support NTT's proposal from IDC's (International Digital's) management point of view, but C&W is a leading telecomms company, so I believe they can do as good a job as NTT and make IDC into an important company," said Taketo Furuhata, president and chief executive officer of International Digital. Plus, since C&W is a founding shareholder in International Digital, "they know us from A to Z", Furuhata added.

On the surface, the deal appears to be a significant victory for C&W. Since March, the London-based carrier has been in a public bidding contest with NTT over International Digital. Soon after C&W first bid for the company, NTT countered with a slightly higher offer. In May, C&W raised its bid only to have NTT ratchet its offer up a slim 1602 yen ($A20.40) per share premium over the C&W price. The following day, C&W offered its winning bid.

Yesterday's Nihon Keizai Shimbun, Japan's leading business daily, quoted an NTT official describing the final price for International Digital as "too expensive".

Truth be told, NTT all along had little interest in International Digital, according to people familiar with the company's plans. Under telecomms market deregulation, NTT this year will be able to offer full international services for the first time. International Digital's network could have bootstrapped that effort. But NTT's international plans extend far beyond what it could gain from acquiring International Digital's 700 employees and global network of 220 landing points, half of which are simply transit agreements, meaning International Digital pays others to carry its traffic over their networks.

However, International Digital's Furuhata doesn't appear to doubt NTT's intentions. "From the price level that they proposed, I believe NTT was serious," he said.

While just a handful of NTT finance people were assigned to the International Digital project, NTT's manpower and strategic energies were and are still locked on its recently announced deal with AT&T, people familiar with the company said.

The two carriers -- NTT and AT&T -- are setting up a joint venture in Japan that will offer network services to large multinational customers over IBM's Global Network, which AT&T bought from IBM last year for about US$5 billion. NTT and AT&T first announced the deal in April, but from June 1 have started negotiating specifics of the joint venture. Officials expect the venture to be formally established within a few months.

To be sure, had NTT won International Digital's hand, the move would have given the carrier a head start on its overseas expansion plans, expected to accelerate next month when NTT reorganises. But a loss to C&W also has value for NTT, officials acknowledge privately. As a former state-owned carrier that has been semi-privatised since 1985, NTT has long been criticised for restricting competition in Japan's telecomms market.

C&W winning the hand of International Digital may be publicly viewed as an opening up of the Japanese telecomms market. As the first foreign organisation to take over a Japanese carrier, C&W's profile is raised, while NTT can go ahead with its own international plans, perhaps freer from scrutiny over its dominant position at home, people familiar with the company say.

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