Cable & Wireless pleases with U.S. exit plan [8th December 2003]

LONDON, Dec 8 (Reuters) - Cable & Wireless Plc (UK:CW) unveiled exit plans for its loss-making U.S. businesses on Monday on far better terms than expected, boosting shares in the British telecoms firm and winning praise for its management.

Cable & Wireless said it would put the Web hosting and IP solutions businesses into Chapter 11 bankruptcy and sell most of it to Gores Technology Group for $125 million -- a fraction of billion of dollars spent to acquire and build the business.

Cable & Wireless estimated its cost of exiting the United States would not exceed 300 million pounds ($518 million) -- well below analysts' estimates of up to 800 million pounds.

"The market's pleased with the announcement. The exit cost is considerably lower than we had forecast," said Tim Rees at Insight Investment, which owns 1.3 percent of Cable & Wireless.

Cable & Wireless shares leapt as much as 10 percent on the news. By 1415 GMT, they stood 6.4 percent higher at 137-1/2 pence. Its 8.75 percent sterling bond, due August 2012, was bid three points higher at 107.5 percent of face value.

Analysts credited the firm's new management, led by Chairman Richard Lapthorne and Chief Executive Francesco Caio, for deftly managing the latest step in the makeover of the 131-year-old former provider of communications to the British empire.

"Richard Lapthorne... is repeating the successful strategy that he used at British Aerospace," said one telecoms analyst.

But others wondered how long the honeymoon would last. Karen Robertson, fund manager at Standard Life Investments, which owns about 1.1 percent of Cable & Wireless, said the focus would now switch to how the group managed its rump UK and Caribbean operations. She also saw a risk of U.S. financial claims.

"C&W group has over a billion pounds in cash at the group level and a key risk is that we may begin to see lots of litigation in the U.S. regarding that," she said.

Lapthorne said that by placing it under Chapter 11 protection, Cable & Wireless had ringfenced the U.S. business. But asked about the risk of litigation, he said: "Who knows? You can never predict that." C&W said proceeds from the sale would be used to pay off outstanding liabilities of the U.S. business.

BACK TO BASICS

ING analyst Andrew Darley wondered whether the U.S. exit would be the last positive trigger for the company's share price. "The focus is going to return to the operating fundamentals which are disappointing," he said.

Chief Executive Francesco Caio said the U.S. decision would enable top management to focus on restoring the group's fortunes in markets like the UK where the firm was still a key contender.

The firm ruled out a rush use of its cash pile. "We're not in any hurry with the cash... We're not going into the shopping mode just because we have the cash," Lapthorne said.

Lapthorne, along with Caio, who joined Cable & Wireless in April, have restored some confidence in the company after a disastrous run under former boss Graham Wallace, who took it into a now-lacklustre market for corporate telecoms services.

Cable & Wireless shares plunged to a 20-year low of 37 pence late last year. The stock has tripled in value in 2003.

BANKRUPTCY PROTECTION

Cable & Wireless said the U.S. sale under the country's bankruptcy code would permit a restructuring of the businesses to cut costs. "Cable & Wireless has done what (almost) every other telco in the U.S. has done," said Chairman Lapthorne.

C&W is keeping traditional phone businesses in small countries around the world, as it cuts jobs and bows out of the United States and continental Europe.

The U.S. businesses posted an operating loss before exceptional items of 50 million pounds for the half year to September 30.

The company said the offer from Gores comprised $50 million in cash and $75 million in a loan note. Other bidders would have an opportunity to submit higher and better offers through a court-supervised competitive bidding process.

Cable & Wireless said it expected the sale to be completed by the end of its financial year on March 31. The firm said it expected an impact of 10-15 million pounds on its fourth-quarter operating profits from the decision.