C&W Acquires Energis

LONDON -- Cable and Wireless plc (“Cable & Wireless”) announces today, 16 August 2005, that it has reached agreement to acquire the entire issued share capital of Chelys Limited (“Energis”). Energis will be acquired on a debt and cash free basis, save for Energis’ finance lease obligations of approximately £37 million, for an initial cash consideration of £594 million. On completion Cable & Wireless will inject approximately £35 million in cash, which is expected to be recovered within the first year after completion, to meet Energis’ short-term working capital requirements. Completion of the acquisition is subject to Office of Fair Trading (“OFT”) approval.

In the third year following completion, Cable & Wireless has agreed to pay a contingent consideration of between zero and £80 million, payable in cash or shares at Cable & Wireless’ option, dependent on the level of Cable & Wireless’ share price. The acquisition is expected to be accretive to underlying earnings per share in the first full financial year after completion and beyond. In addition, the transaction is expected to deliver an acceptable return on invested capital in the second full financial year after completion.

Announcing the agreement Cable & Wireless Group CEO, Francesco Caio, said: “The acquisition of Energis is a further step in the development of Cable & Wireless in the UK and will accelerate the strategic transformation that we have undertaken in the last 15 months. The integration of the two businesses will deliver good cost and capex synergies and add blue chip customers to our existing base in the large corporate segment. Importantly, it will also create a stronger player with the scale needed to succeed in the increasingly competitive telecoms industry. The timing of this acquisition allows us to exploit the rapid growth in demand for IP-based services and the opportunities presented by the creation of a regulatory framework designed to facilitate infrastructure-based competition. For these reasons, this acquisition makes both financial and strategic sense.

“We are realistic about the short-term prospects of the combined business. The transaction will not alter the fundamental trends affecting legacy services of continued pricing pressure and a high level of competition. Additional scale will allow us to further reduce unit costs tomitigate this pricing pressure in legacy services and, in the mid-term, it will drive better returns on our strategic investment programmes. Through our investments in broadband and local loop unbundling and our planned rollout of a next generation network, we will address the growing IP demands of our combined customer base and re-position Cable & Wireless as the alternative to the UK incumbent.

“The purchase price is justified by the cost and capex synergies that are uniquely available from combining Energis and Cable & Wireless in the UK. The synergy value is based on our preliminary assessment and will be further developed as the UK executive team, led by John Pluthero, completes the integration plan.

“With our investments in NGN and LLU underway, a better regulatory environment and the growing demand of our customers for IP-based services, the acquisition of Energis accelerates our transformation and enhances our returns by adding volume to our new infrastructure.”

The acquisition is expected to complete in Autumn 2005, subject to OFT clearance and the potential requirement to implement a scheme of arrangement to acquire the most junior tranche of Energis’ bank debt.

Outlook

Further to the guidance provided to date on Cable & Wireless Group outlook for 2005/6, Cable & Wireless expects the performance of the Group in the second half of this financial year to be impacted by the transaction in the following ways:

Additionally, we expect there to be a 30 percent decline annually in Energis’ narrowband ISP revenue.

Organisational changes On completion, John Pluthero will be appointed Executive Director UK Business and will join the Board of Cable & Wireless. He will be responsible for the combined UK operations of Cable & Wireless and Energis, excluding Bulldog Communications.

John Pluthero, Chief Executive of Energis, said “The fundamental changes in the UK telecoms market cannot be dealt with by yesterday's model. This combination delivers what customers require today - a company with more capability, greater access and larger scale. Those are the prerequisites to compete in the UK market and that is the business we are setting out to create today."

Cable & Wireless Group Chairman, Richard Lapthorne, concluded: “This acquisition is all about accelerating the creation of a sustainable competitive UK business for Cable & Wireless in the medium term and we strongly believe that it will achieve that aim. Nevertheless we have no illusions about the challenge facing us as we manage the transition period, when the pricing of legacy products remains weak and yet the tangible benefits of our shift to the next generation network have not yet kicked in.”

Cable & Wireless plc