Joint Ventures AT&T, BT Form Global Alliance

A new U.S.-Anglo alliance is being forged to attack the international telecommunications market. The partners are AT&T Corp. and British Telecommunications PLC, the leading telecom luminaries in their home countries but less than stellar in operating abroad. The “near-merger” of operations into an independently operated third company is also recognition that telecommunications increasingly must be pursued on a global scale and with a player of sufficient size, focus, and finances to succeed. AT&T has had some difficulty forming a network of alliances with international partners that can pay off, and British Telecom’s primary effort toward global expansion blew up when it was beaten out by WorldCom Inc. in a bid for MCI Communications Corp. The new venture will have the advantage of massive scale going in with established operations in voice and data services, a network to carry communications traffic, and communications services for large multinational organizations. Annual revenues at the outset are about $11 billion with $1 billion in operating profits. Taking advantage of Japan’s swiftly deregulating markets, Prudential Insurance Co. of America and Mitsui Trust & Banking Co. have agreed to form a 50/50 joint venture in Japan to market and manage investment trusts, the Japanese equivalent of mutual funds. The two companies are aiming to have the new company, to be called Prudential-Mitsui Trust Investments Co., up and running by December, when Japanese regulators will allow banks to start selling investment trusts. Newark, N.J.-based Prudential, which already has insurance operations in Japan, is taking a risk by expanding its presence in a country that is experiencing economic turmoil prompted by huge loan losses at banks. But the company seems to believe that potential growth in Japan’s financial services sector far outweighs the country’s current economic problems. Mitsui is Japan’s third-largest trust bank, a type of bank that specializes in managing funds for corporations and pensions. Investments funds are growing rapidly in Japan, and the venture expects to have two trillion yen of assets (about $1.43 trillion) under management within five years. One potential growth area for the new company is the expected introduction of U.S.-style 401(K) retirement funds in Japan in the future. * World Scene ABN Amro Targets Latin American Bank The worldwide banking consolidation trend continues as banks merge within borders and between countries. One of the latest European banks to set its sights overseas is ABN Amro Holding NV, which agreed to buy Banco Real, Brazil’s fourth-largest public bank, for $2.1 billion. The deal would be the Dutch company’s largest, and the biggest financial services deal ever made in Brazil. This would not be ABN Amro’s first foray into Latin America; it has had a presence there for more than 80 years mostly in investment banking, corporate banking, and car financing businesses. In Banco Real, ABN Amro would get the large retail presence it has sought for some time. A largely retail bank with about $15 billion in assets, Banco Real would give ABN Amro access to a sizable business, which includes 2.2 million retail customers. The agreement also would give ABN Amro 10 related businesses, including an asset management company and insurance companies with operations in Brazil and five other Latin American companies. Brazil is a large market which has been able to attract the attention of foreign banks that feel they’ve run out of growth opportunities at home. This deal follows a score of acquisitions in Latin America — many of them in Brazil — by European banks, including Banco Espirito Santo, HSBC Holdings PLC Banco Santander, and Credit Swiss Group. Latin American banks have been eager to pursue mergers because of earnings difficulties, high levels of nonperforming loans, and inadequate capital. In another banking deal, Rabobank NV of the Netherlands has agreed to merge with Achmea Holdings NV, seizing leadership in the Dutch financial services market and boosting its international expansion plans. Rabobank and Achmea plan to “phase-in” their merger. First, the two companies would join their asset management and insurance operations in a 50/50 joint venture, beginning Jan. 1, 1999, and then would complete a full merger within three years. Both companies are cooperative organizations, which are owned by their customers and employees. Because of their relatively small size, they have found it hard to establish a global presence on their own. The merger would create the largest financial services company in the Netherlands, ahead of ING Group NV and ABN Amro Holding NV. The deal also has cross-border implications, since Rabobank is in talks with KBC Bank Insurance Holding NV of Belgium to form an alliance — aiming to combine forces in their expansion efforts. * Takeover Defenses “Dead-Hand” Pill Loses in Delaware The “dead-hand” pill has flunked a key court test. In a late July ruling, Vice Chancellor Jack Jacobs of the Delaware Chancery Court blasted the ultra-controversial anti-takeover device as a technique that can nullify shareholder votes for directors. If the decision stands, it directly will impact the large number of publicly traded companies incorporated in Delaware and could have wider implications for firms incorporated elsewhere, given Delaware’s lead position in matters of corporate law. The “dead-hand” pill allows directors of a company to continue to vote even though they may have been defeated by stockholders in a proxy fight. In effect, it can freeze a poison pill in place since “dead-hand” directors presumably would be reluctant to redeem the shareholder rights plan. It also would checkmate a hostile takeover by a bidder who would be loath to press an offer that could force the pill to explode and purchase a lot more shares than originally planned. The traditional end-run around a pill is the proxy fight intended to toss out incumbent directors and choose a bidder-friendly slate that would withdraw the rights plan. Jacobs said the “dead-hand” pill “transgresses the statutorily protected shareholder right” to choose corporate directors. However, he suggested that the “dead-hand” pill might survive if it is authorized by the corporate charter. That would mean that the “dead-hand” pill was endorsed by the shareholders who must ratify charter changes. However, amending a charter with a powerful defensive weapon is a tough proposition at most companies, especially larger firms with large institutional ownership. The sharply-worded decision was in connection with a lawsuit brought by stockholders of Toll Brothers Inc. who were fighting the homebuilder’s installation of a “dead-hand” pill. Jacobs issued the ruling in denying Toll’s motion to dismiss the suit. Companies that installed poison pills in mid-1998 included: American Precision Industries; Badger Meter; Barnes & Noble; Biopool International; Browning-Ferris Industries; Cabot Industrial Trust; Chart Industries; Chesapeake Energy; Digi International; Excel Realty Trust; FIRSTPlus Financial Group; Forcenergy; Gemstar International; and Green Mountain Power. Also: MasTec; MGI Pharma; Newport News Shipbuilding; Optelecom; Personnel Group of America; Polycom Inc.; Sun Communities; Texas Instruments; Tricon Global Restaurants; TriQuint Semiconductor; Weeks Corp.; and Zweig Total Return Fund. Companies spun off with pills in their capital structure included Dun & Bradstreet and Nielsen Media Research. Firms that voted in dual classes of common stock included Pilgrim’s Pride and BelFuse.