January 26, 2000 4:00 PM PST

Global One joint venture collapses

The ill-fated Global One joint venture between Sprint, Deutsche Telekom and France Telecom finally collapsed today, as France's telephone company bought out its two giant partners.

The venture has been struggling to stay afloat for some time, marred by low earnings, acrimony between the partners and outside mergers. Created four years ago with the aim of boosting the three companies' international operations, the alliance never reached the level of success its backers had anticipated.

After long speculation about a breakup, the alliance finally dissolved in two separate agreements announced today.

Sprint initially said it would sell its stake in the venture to its two partners for a total of more than $1.4 billion in cash and debt. Later in the day, France Telecom said it had agreed to buy Deutsche Telekom's larger share for about $2.9 billion, as well as taking over all of Sprint's share. That will give the French company control of the entire venture.

The breakup itself came as no surprise. Rumors of the partners' desires to dissolve the relationship have been floating for months. The European partners were engaged in legal struggles with each other over outside merger actions, and Sprint's proposed merger with MCI WorldCom had made that company's withdrawal almost certain.

"This is a model of a troubled alliance," said Boyd Peterson, a Yankee Group analyst. "It has constantly been in flux."

For its part, Sprint has already begun transferring its loyalties to its proposed merger partner. The company said its existing Global One customers will be covered by a two-year transition plan, but added that it already has struck an agreement with MCI WorldCom for future international service.

"Our customers can be assured that Sprint will be able to deliver its complete line of international products, services and network support despite the change in ownership in Global One," Sprint chief William Esrey said in a statement.

France Telecom will pay the American company $1.13 billion in cash and repay $276 million in debt in order to take over Sprint's share in the venture.

As part of the agreement, both European companies--each of which hold a 10 percent stake in Sprint itself--will vote their shares in favor of the merger with MCI WorldCom then relinquish their seats on Sprint's board after the merger is approved.

For its part, Deutsche Telekom will sell its separate share in the venture to its French partner for $2.76 billion in cash and $188.5 million in debt repayment.

The purchase will give France Telecom the joint venture's list of blue-chip customers and a network that includes access points in more than 40 countries. But while the departing partners have agreed to keep maintaining their share of the network for the next two years, they ultimately will take their Germany- and U.S.-based facilities out of the venture with them.

That will strengthen France Telecom's overseas presence, giving it sole control of a brand name that pulled in $1.1 billion in revenues in 1999. But it also will free the two bitterly competitive European companies to compete against each other at home and overseas.

It was in large part that rivalry, and the political dimension inherent in state-owned firms, that helped push Global One into dangerous waters in the first place, analysts say.

"You can't look at these alliances strictly in strategic business terms," Peterson said. "There are intra-European issues there that are a little more political in character."

The sale of the venture is expected to close within a few months, Sprint said.

 

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