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British Telecom to buy Infonet

Telecommunications service provider signs deal to take over Infonet for $965 million.

British Telecom will acquire Infonet Services in a deal worth $965 million, BT Group said on Monday.

The telecommunications giant said its acquisition of the network service provider will create cost savings and help it expand operations in North America and the Asia-Pacific region. The deal is likely to close in the first half of 2005, subject to shareholder and regulatory approvals.

While customers of BT will be able to access Infonet's offerings in fault management, order management, pricing and billing systems, BT's foray into Internet Protocol-based products would help Infonet customers, the companies said. The British telecom giant has plans to grow into an IP-based network service provider by 2009, abandoning its current position in the switched-based network market. It has planned migration from the public switched telephone network to an IP setup in 2007.

Infonet's revenue of $620 million coming from cross-border services to enterprises will boost BT's global services business, BT said. The acquisition should also help improve BT's presence in the Americas, a key market for Internet Protocol-based services, the company said.

Excluding Infonet's net cash balance of $390 million, the transaction value of the deal is $575 million. The deal is likely to be cash-flow neutral for BT in the first year and to have a positive effect after that, BT added.

Infonet's management team, including Chief Executive Jose Collazo, will remain in place to assist in the transition. A BT representative said job losses couldn't be ruled out.

Infonet, which is based in El Segundo, Calif., operates locally in 70 countries and has network access in another 180 countries, BT said. Infonet's customers include Bayer, Hilton, IBM, Nokia and Siemens. The U.K. telecom provider recently signed a deal with Hewlett-Packard to tap its corporate voice and data network and its product support call centers within Europe, the Middle East and Africa.

"Infonet brings us specialist skills, a great customer base, increased global reach and additional local presence where we need it," Andy Green, CEO of BT's global services, said in a statement. "By combining the strengths of both companies, we will substantially improve our ability to help our new and existing customers address the challenges and opportunities of the digital networked economy."

Julian Hewett, principal analyst at Ovum, said he expected the move to be a good one for BT.

"Neither BT Global Services nor Infonet has adequate scale as a genuinely global networking player. Both organizations have been loss-making, but together they should have sufficient scale to generate a profit when the synergies kick in," he said in a statement.

Jo Best of contributed to this report from London.
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