NEGOTIATIONS which could lead to a merger between British Telecommunications and Cable and Wireless, creating a potentially world leading telecommmunications company have been resurrected.
Discussions centre on proposals for C&W to acquire BT through a reverse takeover, with special dividends paid to shareholders. Sir lain Vallance, BT chairman, and Sir Peter Bonfield, BT chief executive, would have the top jobs in the merged company which, at current prices, would have a market capitalisation of £33 billion sterling.
C&W said last night, after a day which had seen the price of both company's shares soar, that the talks, abandoned a month ago, were once more active.
"Exploratory discussions are being held with British Telecommunications which may or may not lead to a merger of the two companies. A further statement will be made if appropriate although there is no immediate expectation of this," it said.
It is understood that senior C&W managers have been telling middle managers the merger is "only a matter of time".
BT refused to comment on C&W's statement or on the prospect of a merger. BT shares closed at 348.5p, a rise of 14.5p on a day in which 24 million shares changed hands. C&W closed at 514p, driven 36.5p higher by bid speculation.
Sir Iain is believed to have sought approval to press ahead with the talks at a BT board meeting yesterday. The British government is also thought to be keen to see the deal go through.
People familiar with the negotiations said last night that, although the talks between the company's senior executives were curtailed in February, their financial advisers had continued to seek solutions to the problems impeding a merger.
These included a difference of opinion on price, the cost of buying out the minority shareholders in Hongkong Telecom, in which C&W has a 57.5 per cent stake, the need to dispose of Mercury Communications to avoid regulatory problems and the need to find a political answer in Germany where both BT and C&W have local partners.
It is thought that the two companies are not far apart on price, that the Hongkong problem can be solved by the reverse takeover and that Mercury could be spun off in a way which would not involve its acquisition by a potential competitor such as AT&T of the US.
The question of Germany, where C&W has a strategic alliance with the utilities group Veba, remains to be resolved.
BT needs C&W's strength in the Asia Pacific region where, in addition to Hongkong Telecom, it has interests in the Japanese long distance carrier IDC as well as Optus in Australia to support its global ambitions.
