TAKEOVER fever gripped the world's telecommunications industry yesterday, following the announcement of the proposed merger of British Telecommunications and MCI Communications of the US.
Shares in potential takeover targets rose as leading international companies cast around for a response to the BT/MCI deal.
France Telecom is understood to have called a number of investment banks to explore an increase in the 20 per cent stake it and Deutsche Telekom of Germany together hold in Sprint. Like MCI, Sprint is a challenger to AT&T's hegemony in the US long distance telecoms market.
It emerged yesterday that Cable and Wireless, which itself came close to merging with BT last spring, has been in discussions on an alliance in international telephone traffic with Nynex, the regional telecoms operator in the north east of the US.
But C&W indicated it was unlikely at present to combine lake BT with a US telecoms operator.
But the strongest pressure was on AT&T, the largest US telecoms group, to react to the merger of its main domestic and international rivals.
Investors expect it either to cement its existing Unisource alliance with some of the smaller European operators or seek another international strategic link up. Two of the Unisource members - KPN of the Netherlands and Telia of Sweden are purchasing shares in Telecom Eireann, and so the future of the Unisource/AT&T alliance will have a bearing on the Irish company.
The prospect of further transatlantic deals was heightened as investors welcomed the BT deal by lifting its shares 22 1/2p to 373 1/2p.
BT has agreed to buy the 80 per cent of MCI it does not own for more than $20 billion (£12 billion) in shares and cash to form Concert, which would be the world's fourth largest telecoms company by sales.
Shares in KPN, the Dutch - national telecoms utility - and one of the companies buying the Telecom stake - rose 50 cents amid speculation that AT&T might seek a minority stake in its Unisource ally.
Shares in Vodafone, the UK cellular company which some analysts see as a potential partner for AT&T, were up 4p at 240 1/2.
Meanwhile, Sprint shares dipped in New York as market participants evaluated regulatory obstacles to a takeover by its two European partners.
Deutsche Telekom said acquisitions were a lower priority than the reduction of debt which it has promised investors in its forthcoming privatisation issue.
However, at midday Sprint shares still stood more than 5 per cent ahead of their closing price before rumours of the deal between BT and MCI leaked out on Friday.
Investment bankers said Sprint was likely to seek a deal to shore up its position in the increasingly competitive US long distance market.
It emerged yesterday that negotiations between BT and MCI broke down about two weeks ago. MCI executives then engaged in discussions with GTE, another US telecoms company. Investment bankers said that the MCI move put pressure on BT to increase the price premium it was paying for MCI to the 30 per cent it disclosed on Sunday.
