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C&W Soars on Sell-Off Speculation

Michelle Donegan
News Analysis
Michelle Donegan
4/30/2007

Cable and Wireless plc (NYSE: CWP)'s share price jumped more than 5 percent early Monday on reports that the company is considering splitting its U.K. and International businesses and selling them to private equity firms or other operators.

The operator is playing down the rumors. "We are entirely focused on building the value of our two individual businesses -- U.K. and International," says a C&W spokeswoman. "We are in the early stages in terms of both businesses and there is more work to do. As such, any discussion of spinning off our businesses is premature."

But the speculation was enough to edge up C&W's share price by 10 pence, more than 5 percent, to 192 pence early Monday, though by late afternoon the stock stood at 186 pence, up 5 pence, or nearly 3 percent.

Anything that boosts C&W's stock takes the carrier's top executives closer to a substantial financial windfall. If C&W's share price reaches 228 pence by 2010, 60 of the operator's senior executives will share a bonus worth more than £200 million ($400 million).

John Pluthero, group managing director for the U.K. business, and Harris Jones (the man with two surnames), who runs the International business, would each pocket up to £20 million ($40 million) if that share price target is reached. While it's still some way off that 228 pence threshold, C&W's share price has more than doubled since it announced its structural separation, the departure of its CEO, and a radical re-appraisal of its U.K. business. (See C&W Says Ciao to Caio and C&W Stuns With Job & Customer Cuts.)

And in the past year it has also completed the construction of a new data network, and reported improved financial results. (See C&W Neuters Bulldog, C&W Completes NGN Rollout, and C&W Reports H1.)

C&W's U.K. business unit is now 15 months into its radical restructuring program to streamline operations and focus on its most lucrative, large U.K.-centric enterprise customers. In February 2006, the company announced it would cut its customer base from 30,000 to 3,000 and reduce headcount from 5,500 to between 2,500 and 3,500. (See C&W Stuns With Job & Customer Cuts, C&W Updates on UK, Pipex Targets C&W Users, BT Hovers Over C&W Customers, and Rivals Fancy C&W's Castoffs.)

Then in June, the operator exited the U.K. consumer broadband market and planned to use its local loop unbundling (LLU) network -- which it acquired with Bulldog -- to provide wholesale capacity to service providers and access services to large enterprises. The operator sold its residential and small business broadband customer base to Pipex Communications plc for £12 million ($24 million) in September. (See C&W Neuters Bulldog, C&W Unveils Wholesale Strategy, and Pipex Buys Bulldog Base.)

The operator will give an update on this program when it reports full year results on May 24. But one analyst says phasing out small-to-medium sized business customers has not been straightforward.

"Disconnecting the smaller ones took a lot longer than expected, simply because billing systems made it hard to identify which ones were not making money for C&W," says David Molony, senior analyst at Ovum Ltd.

Molony adds that C&W's international operations could be a good target for a global operator or private equity investors.

Having slimmed down and refocused, C&W shouldn't have too much trouble attracting the attention of the cash-laden private equity community, which has already shown an appetite for telecom acquisitions. Irish carrier eir and Danish incumbent TDC A/S (Copenhagen: TDC) have both been taken over by private equity groups. (See Eircom Accepts Offer, TDC Unveils $12B Offer, NTC Completes TDC Offer, and Eurobites: A Private Affair.)

Cable & Wireless will announce new names for its U.K. and International business units on May 24 as they are not exactly accurate. The UK business actually spans Europe, Asia, and the United States and serves large enterprise customers that need international connectivity, while the International business operates in island economies -- such as Panama, the Falklands, and Caribbean countries -- and delivers consumer mobile and broadband services.

— Michelle Donegan, European Editor, Light Reading

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