The great bidding war is over: Toyota Motor Corp. and Itochu Corp. have each decided to sell their 17.7 percent stake in International Digital Communications Inc. to Britain’s Cable and Wireless PLC. With a winning bid of 110,577 yen per share, C&W has bested the favorite, Nippon Telegraph and Telephone Corp., for control of IDC. The outcome is a landmark for the country’s telecommunications industry, and it has symbolic importance for the entire economy. Cable and Wireless’ win could herald the emergence of a new business environment in Japan.
The Cable and Wireless bid values IDC at 69 billion yen, which seems awfully steep for a company with a net profit last year of 2.08 billion yen on sales of 75.2 billion yen. NTT is thought to have conceded because there was no economic justification for trying to top the British company’s offer. But Cable and Wireless values IDC for considerably more than the assets on the books; the purchase gives the British company the opportunity to extend its network, and in the new world of global telecommunications, nothing is more important. Although it has had a strong presence in Hong Kong for some time, Cable and Wireless has not been able to compete with other large carriers in the rest of the region. The IDC purchase should change that.
The deal will also have a profound effect on the Japanese telecommunications market. The most immediate impact will be felt by NTT, which must come up with a new strategy. It had planned to buy IDC so that it would have an international arm ready to go when it reorganizes later this year. Previously, the company had said that it was not interested in wide-ranging tieups with other companies; that attitude is likely to change when the dust settles. One possible candidate is AT&T, with which NTT has already forged a link — its first with a large foreign competitor.
Japanese consumers will also benefit. Japan, the world’s second largest telecommunications market with a worth of about $105 billion, is considered to be the last major outpost in the emerging global network, one that has been relatively insulated from foreign competition. That is changing — fast. In April, AT&T and British Telecommunications PLC revealed that they were buying a 30 percent share in Japan Telecom Co. — the first time foreign companies purchased a significant stake in a Japanese telecommunications company. Days later, the NTT and AT&T tieup was announced. After the IDC purchase, more deals are likely. Japanese consumers can expect prices to plummet and services to improve.
Just as important, however, is the significance of the deal for the way that business is practiced in Japan. Most observers expected NTT to prevail: IDC was an integral part of NTT’s long-term strategy and the company is too big and too powerful to be thwarted. Not surprisingly, IDC’s board originally voted in favor of the NTT bid, even though Cable and Wireless reportedly offered more money. (Curiously, NTT’s offer was never officially made public.) Thus, Cable and Wireless’ success can be hailed on two counts: First, as a win for a foreign company and as a victory for shareholders, since price seems to have been the deciding factor for Toyota and Itochu.
That qualifier — “seems” — is important. Politics hung over the fight for IDC. British officials made it clear to their Japanese counterparts that the bidding war was being closely scrutinized; they warned that it could become a trade dispute. Reportedly, EU officials were also keeping an eye on the process. Since Toyota and Itochu have significant international operations, they also had to be sensitive to political winds. Nor is the political pressure over: The Ministry of Posts and Telecommunications has said that it will monitor the takeover to study its impact on competition and ensure that IDC maintains “Japanese-style employment practices.”
Finally, the winning bid comes close to being a hostile takeover, a rarity in Japan. It was “hostile” insofar as the IDC board originally opted for the NTT offer; at the same time, however, Cable and Wireless has had a stake in the company since it was founded, which considerably softens the “hostility.” If the Japanese government actually lived up to its pledge to let the market determine the outcome of the bidding war, Japanese management should be on the alert. Market forces are on the rise and executives face a new world. Appropriately enough, telecommunications are the harbinger of change.
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