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C&W Eyes Ethernet Acquisition

Ray Le Maistre
5/28/2008

Having just missed out on buying virtual VPN player Vanco plc , British also-ran Cable and Wireless plc (NYSE: CWP) is now in talks to buy U.K. Ethernet service provider THUS plc (London: THUS). (See Reliance Snaps Up Vanco.)

C&W issued a statement to the London Stock Exchange today saying it "confirms that it has made a preliminary approach to the Board of Thus in relation to a possible offer for the company. This announcement does not amount to a firm intention to make an offer and accordingly there can be no certainty that an offer will be made."

In response, THUS noted that it's "confident in its future as an independent group, which offers an attractive combination of strong growth and future cash flow generation. The Board remains focused on delivering maximum value for shareholders and will evaluate any proposal from any third party against the value that the Company can deliver as an independent group."

The news sent THUS's share price up by 28.5 pence, nearly 26 percent, to 138.5 pence today on the London Exchange, giving the company a market capitalization of around £250 million ($495 million).

C&W's share price closed down by 4.5 pence, nearly 2.8 percent, to 158.7 pence on the London market.

THUS, which sells voice and data services, including "next generation Ethernet and IP VPN" services, to large companies and government agencies, recently announced annual revenues up 8 percent to £576.2 million ($1.14 billion) and a small operating profit of £4 million ($8 million) compared with an operating loss of £11.1 million ($22.1 million) the previous year. (See THUS Wins Council Deal, THUS Offers Network View, THUS Wins NGN Deal, THUS Pushes IP Exchange, and THUS Wins Ethernet Deal.)

C&W, meanwhile, recently announced significantly improved earnings, with its pre-tax annual profits up 57 percent to £308 million ($610 million). (See C&W Reports Fiscal Year.)

However, C&W is still, after all these years, finding the going tough in the U.K. market, where it faces stiff competition from the likes of BT Group plc (NYSE: BT; London: BTA), Virgin Media Inc. (Nasdaq: VMED) unit Virgin Media Business Ltd. , and Colt Technology Services Group Ltd .

That competition is intensifying as more corporate users switch over to Ethernet services, where BT, ntl:Telewest, and Colt all consider themselves to be strong players. (See BT Still Coy on Ethernet, BT Touts 21CN Progress, New Service, COLT Boosts Ethernet Speeds, and NTL Wins Ethernet VPN Deal.)

Buying THUS would beef up C&W's British business further, give it a better position in the growing Ethernet services market, and enable significant savings from headcount, network, and real estate efficiencies.

If acquired, THUS would become part of C&W's Europe, Asia, and U.S. business, which investors are expecting to be split from its international business (Central America, Macau, Monaco, and other small markets). (See C&W Raises Outlook, Dumps Exec.)

— Ray Le Maistre, International News Editor, Light Reading

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