Telus, AT&T merger talks called off

Rod Ziegler, Business Writer - Edmonton Journal, 18 April 1998

Telus Corp. has broken off billion-dollar merger talks with AT&T Long Distance Canada.

"Important issues could not be resolved in the best interests of our shareholders," Telus president George Petty said Friday.

It's been two weeks since news broke that Telus was negotiating to buy controlling interest in AT&T Canada. The move was widely viewed as an attempt by the Edmonton-based telecommunications company to break out of the Stentor alliance. Stentor is dominated by Bell Canada. Telus, as Canada's third largest telecommunications company is unhappy because Bell calls the shots in the alliance.

A Telus-AT&T Canada alliance would have created Canada's third long-distance voice and data communications network and caused havoc with the Stentor network. It would have cost Telus about $1 billion to buy the two-thirds interest in AT&T Canada held by the Royal, Toronto-Dominion and Scotia banks.

Analysts agreed the deal would have helped Telus carve itself a much bigger share of the $8.5-billion-a-year market. Analysts have speculated that Telus might be looking at AT&T Canada as a way to form an alliance with its giant U.S. parent AT&T.

Other speculation suggested a strategic alliance between Telus and BC Tel to fend off a Telus takeover by BCE Inc., Bell Canada's parent.

"I'm puzzled by what could have made such a great deal go down the tubes," said Eamon Hoey of Hoey Associates telecommunications consultants. "I can't imagine that it was over money," he said, from Toronto. "I wonder if Telus the teenager just saw a prettier girl in the schoolyard and decided to go after her."

Hoey speculated that this week's $1.6-billion offer by Call-Net Enterprises of Toronto for Fonorola Inc. of Montreal may have changed the dynamics of the deal Telus wanted to do with AT&T. Call-Net is the parent company of long-distance provider Sprint Canada.

Call-Net and Fonorola shares are widely held. U.S. long-distance company Sprint Corp. holds a 25 per-cent non-voting stake in Call-Net. "Sprint Canada might now look like a better match for Telus," Hoey said. The Call-Net/Fonorola entity would control 16 per cent of Canada's long-distance market. AT&T Canada has 11 per cent.

"My sense is that Telus wants to step back and consider all its options. And that's difficult to do in a market that's changing daily."

Whatever happens, Hoey said, the Stentor alliance will never be the same. It has been rumoured that Telus has given Stentor a formal one-year notice that it plans to withdraw from the alliance. Neither Telus nor Stentor spokespersons would comment on the rumour.

Telus is committed to a growth strategy to increase shareholder value, spokesperson Jeff Welke said Friday.

There are no other formal negotiations under way, Welke said but added, "The company is actively exploring all opportunities."

Telus shares closed Friday on the Toronto Stock Exchange at $40.75, down $2.05 on a volume of 738,000 shares. The company has nearly 11,000 employees, $4.2 billion in assets and 1997 revenues of $2 billion.