BCE Becomes Bigger and Buys Teleglobe in a $6.7 Billion Deal

Canadian telecommunications holding company BCE Inc. (BCE Quote) announced on Tuesday a definitive agreement to buy the remaining 77% of Teleglobe Inc. (TGO Quote). The stock deal is valued at about $6.7 billion. The move is seen as a catalyst to ignite growth in BCE's international telecommunications business.

Under the terms of the deal, BCE, which owns 80% of Bell Canada and is the country's largest telecommunications company, offered BCE stock it valued at $33.41 in exchange for each Teleglobe share.

Teleglobe ended trading on the New York Stock Exchange Tuesday up 1 1/8, or 3.4%, at 32 3/4. BCE was up 3/8, at 119 5/16, prior to a halt in trading before the announcement, which was made after the 4 p.m. EST close.

Imtiaz Khan, an analyst at Research Capital in Canada, said the acquisition of Teleglobe, which owns the world's third-largest international telecommunications network, would kick-start BCE's global business.

"Teleglobe has developed a presence almost everywhere in the world," Khan said. Khan noted that Teleglobe is also the world's second-largest Internet backbone provider after UUNet, the Internet services division of MCI Worldcom (WCOM Quote). Khan rates Teleglobe a buy, his firm has not done any underwriting for the company. He does not rate BCE.

Because of Canadian regulations, BCE had until recently only been allowed to operate in the local market. In January, BCE said it would sell its 37% stake in Nortel Networks (NT Quote) in order to expand its other holdings' operations both in Canada and around the world.

Teleglobe is also in the midst of expanding its data and Internet businesses to become a more essential part of its operations. Khan said the ratio between Teleglobe's traditional voice communications business and the data and Internet business is likely to reach 50/50 in one to two years. Currently, voice communications account for 80% of the company's business, while data and Internet account for 20%.

Separately, Teleglobe on Tuesday reported net losses in the fourth quarter of 1999 of $23.3 million, or 10 cents a diluted share, compared with a net loss of $184.4 million, or 74 cents a share, in the 1998 period. Revenue for the quarter slipped to $700.9 million from $809.6 million in the year-earlier period. The company said the "disappointing" results reflect the transition away from its traditional voice business.

Jean Monty, BCE's president and chief executive, said that despite the poor earnings, Teleglobe's assets would still provide a springboard for growth.

"Teleglobe will bring an international perspective to our strategic focus on communications services, providing us with an extensive data/Internet network that has direct connections with businesses in 100 countries," Monty said, adding that the purchase would help BCE's Internet and e-commerce subsidiaries to expand beyond Canada.