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Germany's Deutsche

Telekom explores

C&W takeover

FRANKFURT: Deutsche Telekom AG said on Thursday it was exploring the possibility of making a takeover bid for Cable and Wireless Plc, a move likely to complicate British Telecom's efforts to buy the group.

Deutsche Telekom finance chief Joachim Kroeske said the company had made unofficial inquiries about a takeover of C&W, but emphasised that no negotiations had been held to date.

The German telecoms giant considered Britain crucial to its plans to broaden its presence in Europe and the company was trying to determine the best way to enter the British market.

"In our considerations we do not rule this out," Kroeske said when asked if Telekom were interested in acquiring C&W.

"We are involved in sensitive pre-exploratory talks. But there have been no official discussions," he said.

The news could throw a wedge into merger talks between British Telecom Plc and C&W.

It is another indication of the frenzied deal-making in the telecoms industry as deregulation and the search for global markets sparks the unravelling of old partnerships and the creation of new market forces.

Kroeske would not say whether Telekom would make such an acquisition alone or as part of its Global One alliance with France Telecom and Sprint Corp of the United States.

But it was clear Telekom had made Britain a strategic priority.

"The English market is a dominant market in Europe through which a lot of (telecoms) traffic streams are routed. We want to be present in this region alone or with partners," Kroeske said.

Until now it was believed that Telekom was in talks to buy only Mercury Communications, BT's rival on the British market, which is owned by C&W. But Kroeske's comments show the company clearly has other ambitions.

Industry analysts have presumed Global One was bidding for Mercury and not for any of the individual partners.

Kroeske gave strong indications that Telekom would not make such a move on its own. "The constellation of Deutsche Telekom taking over Cable and Wireless might not be the solution that emerges," he said. "These are completely different dimensions."

The move would underscore the company's aggressive policy of international expansion, which Kroeske said remains a major plank in Telekom's strategy.

In the coming years, he said Telekom expected to spend 10 to 20 billion marks in aquisitions or around half its expenditure for technical investment.

Its most significant venture so far is the Global One alliance, which offers global telecoms services to multinational corporations.

Global One, like BT's Concert alliance with MCI Communications of the United States, has been looking for an Asian partner to round out its global service.

C&W's most coveted asset is its majority stake in Hong Kong Telecommunications, which both Telekom and BT see as a way of completing their international networks.

Kroeske said the company was looking elsewhere in the region and planned to announce several acquisitions soon. "We will soon announce plans for further substantial investments in Asia, not in one country but in several," he said.

Kroeske said he would not deny a Bangkok newspaper report that Telekom planned to take a 25 percent stake in the Thai computer and communications group Shinawatra, but would not elaborate on any of the other deals. Analysts said there was considerable market logic behind a possible takeover of C&W by Telekom but they wondered how the German giant would be able to foot the bill, which they estimated to be at least $30 billion.

"It would make more sense for Telekom to buy a U.K. facilities-based carrier like C&W than for AT&T Corp (another rumored bidder) to do so," said Bill Deatherage of brokers Bear Stearns. "What I might worry about is whether this is the best use of their capital."

Such a large expense ahead of Telekom's November share launch worried some analysts.

"It's hard to figure out their strategy. They have enough capital requirements in Germany already," said one analyst who declined to be identified.-Reuter