MCI WorldCom Inc.'s planned purchase of Sprint Corp. has placed new stress on Europe's largest telephone companies, which even before today's record-setting deal had little luck in establishing close ties across the Atlantic.
There were some connections: Deutsche Telekom AG and France Telecom SA, the European companies most affected, each own 10 percent of Sprint and one-third of a joint venture with Sprint in telephone systems for multinationals called Global One.
Analysts said the biggest loser from the deal was Deutsche Telekom, Europe's largest telephone company and the one that has failed most often in seeking international combinations.
Deutsche Telekom had held talks with Sprint over the summer about possibly buying the American long-distance and wireless carrier, but they had not come to fruition. Board Chairman Ron Sommer also was frustrated and embarrassed earlier this year when his $81 billion bid to buy Telecom Italia SpA failed. The company was taken over by the much smaller Olivetti SpA.
For France Telecom, which like Deutsche Telekom is partly owned by the government, the Sprint acquisition was less painful and could turn out to be quite lucrative. But the deal still will require some restructuring of France Telecom's joint ventures and partnerships.
France Telecom said today that it will sell its Sprint shares on the open market at a pace to be determined by Sprint's stock price. The French company said that its initial investment had been $1.6 billion and that at current prices its Sprint holdings were valued at $9.3 billion.
"The disposal of our shares will help us accelerate our international development," a spokeswoman said.
Deutsche Telekom was less clear about its plans, but spokesman Hans Ehnert said, "Our shareholders are profiting from the deal."
In addition, Ehnert implied Deutsche Telekom thought MCI WorldCom was paying too much for Sprint. "From our point of view, it is far too expensive for us," Ehnert said. "We couldn't explain it to our shareholders. Why they [MCI WorldCom] are paying such an amount, one can only speculate."
MCI WorldCom's move also cast doubt about the future of Global One, which provides complete telephone systems for 30,000 international companies. Beset by a lack of direction and tough competition, Global One is widely considered to be a failure by analysts.
Some had predicted that the Sprint-MCI WorldCom deal would cause Global One to come unwound, but the France Telecom spokeswoman did not rule out the possibility, as other company officials have hinted at in the past, that the French phone firm might like to acquire all of Global One. She would say only that the company will "undergo a share-holding modification" and that discussions "to provide a solution" would begin soon.
In Europe, telecommunications companies are faced with the same technological and regulatory issues that have redrawn the landscape in the United States, plus another factor: nationalism. Each big carrier needs to establish international links to be globally competitive, and yet keep from losing its identity. The Deutsche Telekom-Telecom Italia deal failed in part because of Italian fears that the German government, through its partial ownership of Deutsche Telekom, would exert too much influence over an Italian firm.
These companies are young in that many have only begun trading as publicly owned corporations in the last few years, and some face growing pains. Telecom Italia, for instance, has suffered a sharp drop in its stock price in recent days because institutional shareholders feel Chairman Roberto Colaninno's restructuring plan is not sufficiently favorable to minority shareholders.
"A lot of these companies are making some strange decisions," said Steve Jobbers, an analyst with Paribas in London. He pointed out that these European companies have a high proportion of foreign-investor ownership--sometimes as high as 40 percent to 50 percent--and the foreign investors sometimes know little about the country or the culture in which the company operates.
Until the proposed Telecom Italia deal, France Telecom and Deutsche Telekom had enjoyed a close partnership. They had shared in Global One but scrupulously stayed out of each other's markets. But Deutsche Telekom's surprise bid for Telecom Italia, made without even consulting the French carrier, infuriated France Telecom, which has launched litigation against its former partner for an as-yet-unspecified amount the company says will be in the billions of dollars range.
"In many ways they [Deutsche Telekom and Telecom Italia] must be looking at each other and thinking 'Why did we ever spoil our relationship?' " said analyst Dwayne Taylor of Robert Fleming Securities. "But there's no way they will get together after all that has happened."