Contel Corp. is seeking to buy some highly attractive divisions of Communications Satellite Corp. to settle disputes over a $2.5 billion merger agreement that Contel wants to terminate, Contel Chairman Charles Wohlstetter said yesterday.
"We have identified things that we like and have spoken about possibilities," he said in a telephone interview late yesterday. "We might be interested in purchasing the international business. . . . And there are a couple of other things -- some they aren't willing to sell," he said.
Comsat spokesman Richard L. McGraw confirmed that the two companies are negotiating. "But I won't tell you the nature or substance of those negotiations," he said.
Wohlstetter said Comsat's Comsat International Communications Inc. subsidiary, which provides international voice and data network services to businesses, would fit in nicely with Contel's American Satellite Co. American Satellite, a Maryland company, provides domestic communications service to businesses. Wohlstetter declined to identify other subsidiaries Contel wants to buy.
Comsat gets more than half of its revenue -- $422.3 million last year -- from charging U.S. telephone companies for using the international satellite communications system. Rates for that business are rigorously controlled by the Federal Communications Commission.
Contel has its sights set on the remaining, unregulated subsidiaries. Comsat's communications division brought in $14.8 million in profits last year and includes the international communications division Wohlstetter identified; Video Enterprises, which provides in-room video entertainment to hotel chains, and Comsat General, which manages satellites for AT&T domestic communications.
Comsat's Technology Products division, which makes and markets telecommunications equipment, is a separate, unprofitable division.
Atlanta-based Contel, the country's third-largest independent telephone company, announced plans to merge with Comsat in September last year. But Contel decided to pull out of the merger agreement in April. It cited a series of surprises as reasons for canceling the agreement, including a federal order that Comsat refund $62 million in excess earnings to users of its satellites and other federal actions that could affect Comsat's regulated earnings.
Comsat officials had said that Contel knew of the matters in question before signing the agreement and resolved to make Contel stick to its merger plans. Wohlstetter and Comsat Chairman Irving Goldstein subsequently met in New York, and negotiations have been continuing, Wohlstetter said.
"We're saying the temperature is down, let's try to help one another" dissolve the merger agreement, Wohlstetter said yesterday.