Buyout of ITT division means phonemaking giant for Europe

Six months after the first announcement that a European consortium would buy up the European telephone manufacturing division of International Telephone & Telegraph, ITT has finally sold it to a Franco-Belgian company. The deal, which was clinched Dec. 30 in Brussels and unveiled this week with fanfare and a new name - Alcatel NV - makes the new European company the world's No. 2 producer of telecommunication equipment. The acquisition is an attractive one for the Europeans. The company will be second only to American Telephone & Telegraph as a manufacturer of public switching equipment, controlling 45 percent of the European market and 12.1 percent of the world market.

It will also be the world's No. 1 cable producer and an important contender in the field of fiber optics. It will have some 160,000 employees in 75 countries and an estimated annual turnover of more than $12 billion.

Initially, the takeover was billed as a model for ``European cooperation.'' But after prolonged and stormy negotiations, the new ownership is almost entirely French, rather than pan-European.

As it stands, France's state-owned Compagnie G'en'erale d'Electricit'e, or CGE, is the majority stockholder, with 55.6 percent of the shares. ITT will retain a 37 percent interest in the new company.

Two other investors have minor holdings: Belgium's largest holding company, the Soci'et'e G'en'erale de Belgique, has a 5.7 percent share, and Cr'edit Lyonnais, the French state-owned bank, has a 1.7 percent stake.

Last July, Spain's government-controlled telephone company, Telef'onica, offered to take a 10 percent stake but balked at the last minute, although it may join the company in the future.

Telef'onica would like the CGE to share the expense of ``rationalizing'' ITT's Spanish subsidiary, including the laying off of 8,000 workers. The Spaniards also insist on having a say in running the company. Similarly, prospective German partners declined in the end to take part financially in a company that would be under French management.

ITT's decision to sell its European telephone operations was partly dictated by difficulties in adapting sophisticated digital switching equipment, which it developed in Europe, to norms in the United States.

Under the terms of the agreement, the American company will receive $902 million in cash, along with its 37 percent stake in the new company's shares.

But the ante for the new owners will probably double in the coming years. The cost of reorganizing ITT's former European subsidiaries and the continued expenses of developing state-of-the-art switching equipment could amount to an additional $1 billion.

For this reason, CGE president Pierre Suard is pressing the French government to privatize his company quickly in order to facilitate financing of the new joint venture. ``Only a private company can operate on an international level,'' he says.