NEW YORK — ITT Corp.'s attempt to sell most of its phone switching equipment business marks a giant step in the slimming of the world's largest conglomerate, analysts said Thursday.
The reported $2-billion deal with CGE, a state-owned French company, would distance ITT from its historic roots in the phone business, where it began in 1920 as an international counterpart to American Telephone & Telegraph.
Remaining would be some telecommunications operations as well as an assortment of business lines such as Hartford Insurance Group, financial services, the Sheraton Hotels chain and the Rayonier forest products firm.
"It's as though AT&T got out of the phone business," said Robert Sobel, a Hofstra University professor and author of a history of ITT. "If ITT goes through with this, there's no rationale for the company anymore. The question comes up, why hold onto anything?"
Cie. Generale d'Electricite, a state-owned French conglomerate, confirmed in Paris that it was in "advanced negotiations" with ITT on acquiring a big stake in ITT's European-based phone switching equipment business.
ITT declined to confirm what the talks were about, saying only that it "has had joint venture discussions with CGE in the field of telecommunications. These discussions have not resulted in an agreement at this time."
Sources close to the negotiations had said Wednesday that ITT was negotiating to sell the phone equipment business for about $2 billion to a joint venture headed by CGE.
ITT would get a 30% interest in the joint venture, which also would assume up to $1 billion in ITT debt connected with the phone switching equipment business, the sources said. The ITT assets involved have a book value of about $1.8 billion.
ITT stock rose $3 a share Thursday to close at $52.37 1/2 in New York Stock Exchange composite trading as investors reacted enthusiastically to the reports. The stock had climbed $4 a share Wednesday.
ITT ranked No. 4 last year in sales outside the United States of phone switching equipment, which is used by telephone companies to route calls, according to Northern Business Information, a market research firm in New York.
Ahead of it were CIT Alcatel, a phone subsidiary of France's CGE, Sweden's Ericsson and Japan's NEC Corp. Telecommunications accounted for $4.6 billion, or 23%, of ITT's worldwide revenue of $19.9 billion last year.
Analysts said the deal would generate cash that ITT could use to pay off some of its debt, buy back stock and, possibly, fortify its financial services business.
Nevertheless, reports of the deal surprised many observers because as recently as last year, ITT Chairman Rand Araskog was calling telecommunications the heart of the company.
Araskog's strategy ran into trouble earlier this year when ITT gave up on efforts to sell its sophisticated digital phone switch, System 12, in the United States. It took a $105-million writeoff.