| BUSINESSWEEK ONLINE : MAY 24, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
A Hostile Takeover--in Japan? Britain's Cable & Wireless is battling NTT for a telecom prize When telecom group Cable & Wireless PLC CWP first bid for International Digital Communications, the logic seemed 1-2-3. Under Graham Wallace, its new chief executive, London-based C&W is determined to expand its global operations. Acquiring the Japanese carrier would expand its web and give it a foothold in the vast Japanese market. For its part, IDC is too small to survive among hotly competitive long-distance carriers. So in early April, C&W offered an estimated $529 million for the 82% of IDC it didn't already own. A happy ending? Scarcely. C&W's idea of the perfect match has quickly turned into the closest thing to a hostile takeover bid Japan has ever seen. Nippon Telegraph & Telephone Corp., Japan's dominant domestic carrier, made a counteroffer on Apr. 15. For many foreign executives, IDC's decision will be a key gauge of how far Japan's markets, after years of recession and incremental reform, have actually opened. C&W isn't giving up. On May 7, after IDC's board voted to accept NTT's bid, C&W bumped up its offer to $556 million, which tops NTT's, and gave IDC's other shareholders until June 5 to accept. Says Jay Nelson, senior editor of Success Stories Japan, a New York newsletter that tracks Corporate Japan: ''It's the first crack in the wall for foreign companies to enter the Japanese telecom market.'' At first glance, IDC doesn't look worth fighting over. It was set up in 1987 as one of a group of ''new common carriers'' to compete with NTT NTT in the long-distance market domestically and with KDD internationally. But market liberalization and new foreign competition hammered call rates, and the new carriers weakened. IDC, which never went public and does not report results, is now third or fourth in Japan's international market--and the only new carrier not yet absorbed by a larger partner. Nonetheless, acquiring IDC is a sound strategic move. Although it is ranked the No. 3 international carrier behind AT&T T and Deutsche Telecom DT, C&W's global network is patchy. The company, which had sales last year of $12.9 billion, is expanding from voice traffic to data transmission and Internet services. All of this makes IDC an attractive buy. Japan is essential to the corporate clients C&W now seeks. Internet use in Japan, only 11% of all households, is set to expand rapidly. ''In acquiring IDC, we will have an ideal vehicle already set up in Japan,'' says Stephen Pettit, C&W's executive director for global business. C&W is no stranger to IDC, having owned an 18% stake in IDC since its founding. C&W has tried to tread carefully. It has stressed that it would offer jobs to all IDC employees. Pettit asserts that C&W's emphasis on new products and services would make the company a more dynamic place to work. TAKE THE CASE. It's not clear whether this stance will persuade IDC's board or its other shareholders. These include Toyota Motor Corp. TOYOY and trading company Itochu Corp., both of which also hold 18% stakes. If either sells to C&W, the British company could veto board decisions. NTT doesn't want that. Long barred from international services, it will split in July into two local operations and a long-distance carrier. Buying IDC would give the long-distance carrier an instant international network. The impulse to keep IDC Japanese is clear enough. IDC's board has been planning to accept a bid from NTT since last year. But Toyota President Hiroshi Okuda now says his company's decision will rest partly on ''international relations.'' That may weigh in C&W's favor: Britain has threatened to take the case to the World Trade Organization if NTT wins the battle. ''There's a lot of sunlight on this deal,'' says Nicholas Benes, president of Japan Transaction Partners, an investment banking advisory. ''The Japanese shareholders can't simply do something nice for their friends.'' Analysts in London give C&W a 50-50 chance at this point. Without IDC, they say, it will need a Plan B for Japan, where there are no obvious alternative acquisitions. For IDC's board, the challenge comes now. It has to decide whether to act in the interests of Japan Inc.--or in the interests of shareholders. It's a choice between an outmoded Japan and one only now emerging. By Sebastian Moffett in Tokyo, with Heidi Dawley in London _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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