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ITT Said To Be Negotiating Sale of Telcom Arm

June 26, 1986 GMT

NEW YORK (AP) _ ITT Corp. is negotiating to sell its European-based phone switching equipment business for about $2 billion to a European group in which it would retain a 30 percent stake, sources close to the talks said Wednesday.

Wall Street analysts said the arrangement sounded like a good deal for ITT, which has been seeking to shed some of its telecommunications assets.

Speculation about the deal caused ITT’s stock to shoot up $4 a share to $49.37 1/2 Wednesday in consolidated New York Stock Exchange trading.

Alcatel, the French phone company, would be the majority owner of the new company that would take over ITT’s phone switching equipment business, which consists of several companies in Belgium, West Germany, Italy, Spain, Norway and elsewhere.

ITT itself would own 30 percent of the new company and there could also be part ownership by Italian, Belgian and British phone companies, the sources said.

The sources agreed to discuss the negotiations only if they were not identified, because a final agreement had not been reached.

The deal would remove ITT almost completely from its roots in telecommunicati ons. The New York-based multinational conglomerate calls itself the world’s largest producer of phone switching equipment outside the United States. It was formed in the 1920s when American Telephone & Telegraph Co. spun off its foreign operations.

ITT also owns the Hartford Insurance Group, the Sheraton hotel chain, Rayonier forest-products company and dozens of smaller companies.

ITT took a $105 million charge against earnings earlier this year when it announced it was closing down its sophisticated System 12 digital phone switch project in the United States because of development problems. It said it was laying off 1,600 people, 1,200 of them in Raleigh, N.C.

System 12, which is ITT’s premier phone switch, has done better in other countries.

Carol Neves, an analyst for Merrill Lynch & Co., said that System 12 is profitable in West Germany and Italy and that there are orders for the switch from 20 countries in Europe, the Middle East and the Far East.

In addition to System 12, which is a digital switch, ITT also sells a profitable line of analog switches, which are older and less sophisticated.

Miss Neves said that if the deal went through, ITT probably would use the money to pay off debt, buy back some of its stock and, if possible, make some acquisitions.

The Financial Times of London reported in Wednesday’s editions that Compagnie Generale d’Electricite, the nationalized French company that controls Alcatel, was in advanced talks with ITT to merge ITT’s European telecommunications assets with those of its Alcatel subsidiary.

The newspaper said ITT would own a stake of about 20 percent in the company, but sources put ITT’s stake closer to 30 percent. They also said the new company would take on some debt.