{dirlink 5|254} (NYSE: CWP) today announced a deal to acquire alternative operator Energis plc (OTC: ENGSY) for up to £674 million (US$1.22 billion) in cash (see C&W Acquires Energis).

After some last-minute drama stirred by a rival bid from {dirlink 5|197} (London: THUS), Energis’s debt holders gave in and approved the deal, just in time for yesterday’s 5 p.m. deadline (see THUS, C&W Clash Over Energis).

C&W, the U.K.'s second largest telecom operator, will pay £594 million ($1.08 billion) in cash for Energis owner Chelys, assume its finance lease obligations of around £37 million ($67 million), and inject £35 million ($63.4 million) into the business to meet its short-term working capital requirements.

Shareholders will receive up to £80 million ($144.92 million) in cash or shares in 2008 depending upon the combined company’s share price. That puts the purchase price slightly lower than expected -- analysts had expected C&W to pay up to £780 million ($1.41 billion).

Cable & Wireless CEO Francesco Caio said in prepared statement that the tie-up would help accelerate the company’s transition to next-generation technologies in a tough market dominated by {dirlink 5|21} (NYSE: BT; London: BTA).“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.”

He added, “Additional scale will allow us to further reduce unit costs to mitigate this pricing pressure in legacy services and, in the mid-term, it will drive better returns on our strategic investment programmes.”

C&W has been trying to get back on track after selling its loss-making units in the U.S. and Japan. Energis was an early alternative carrier in the U.K., emerging as a spinoff of the country's electric power grid operator, but fell into the hands of debt holders and investment banks as it faced fierce competition.

Cable & Wireless hopes to save £55 million ($99.63 million) in operating costs and capex, rising to £80 million in 2008. That spells bad news for employees, as C&W intends to shed around 700 jobs by March 2008.

Shares in C&W fell 6.25 pence (3.83%) in early morning trading to 156.75 ($2.82) pence on the London Stock Exchange.

— Nicole Willing, Reporter, Light Reading