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C&W dials up sharp gains
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April 26, 1999: 8:02 a.m. ET
No. 2 U.K. telecom rises 5% after sale of cable-laying unit to Global Crossing
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LONDON (CNNfn) - Shares of Britain's second-largest telecom company, Cable & Wireless, sprinted ahead more than 5 percent in London Monday after the company revealed plans to sell its cable-laying operations to U.S.-based Global Crossing for 550 million pounds ($885 million).
The stock, up 43 pence to 885, was still well off its year-to-date high of 999 pence.
C&W's decision to dispose of its 159-year-old Global Marine subsidiary, owner and operator of the world's largest fleet of cable-laying vessels, is the latest sign of the consolidation sweeping the telecom sector.
The cash and debt deal is part of a broader strategic restructuring at C&W under its newly appointed chief executive officer, Graham Wallace, company officials said. Wallace has made no secret of his desire to intensify C&W's focus on data and Internet services -- a point C&W reiterated Monday.
"This sale is in line with our increasing focus on the operation of communications networks, in particular data and Internet," Stephen Pettit, C&W's executive director for global business, said in a statement.
Analysts said that by selling its cable-laying subsidiary -- a step U.S.-based AT&T (T) and the U.K.'s leading telecom company, British Telecommunications, have already taken -- C&W will be better positioned to husband its resources around its network operations.
"It is seen as a sign that the new management at C&W is willing to focus the group in a way that should crystallize shareholder value," said James Ross, a telecom analyst at ABN Amro, which serves as a broker to C&W.
Ross said the trend in the industry has been away from telecom companies laying their own cables. Shedding Global Marine, he noted, will free up capital and labor time currently being expended on the cable-laying unit.
Under terms of the deal, Hamilton, Bermuda-based Global Crossing will pay 450 million pounds in cash and assume 100 million pounds of third-party debt. The transaction is expected to be completed within 60 days.
Global Crossing said the purchase will allow it to save $80 million to $100 million annually as it undertakes an ambitious expansion of its fiber-optic network.
The platform will span four continents and carry data, voice, video and Internet transmissions to many of C&W's fiercest rivals, including British Telecommunications. The market for these services is estimated at $10 billion, according to Global Crossing.
But as part of its deal with Global Crossing, C&W said it will enjoy "assured access" to Global Marine's cable-installation and maintenance facilities.
Monday's deal mark's Global Crossing's second major acquisition in the past couple of months. In mid-March, the company unveiled plans to buy U.S. local and long-distance carrier Frontier Corp. for $11.2 billion in stock.
At C&W, meanwhile, Wallace is said to be contemplating the sale of other non-core businesses. Its 53-percent owned cable-and-phone company, Cable and Wireless Communications, is rumored to be merging with rival operator Telewest.
C&W has already said it is examining the strategic options for One2One, its cellular joint venture with MediaOne (UMG). Press reports have suggested Deutsche Telekom (FDTE) is interested in the unit, despite its proposed $82 billion merger with Telecom Italia.
Deutsche Telekom refused to comment on the reports, calling them "speculation".
A spokeswoman at C&W Communications refused to elaborate on the possibility of a sale of the unit Monday, saying only that the entire telecom sector is "on fire" at the moment and "everyone is talking to everyone about a wide range of issues."
"One of the main trends going forward is consolidation," said Caroline Keppel-Palmer, the spokeswoman. "It is clear that Graham's strategy has been to exploit the high-growth markets of data and digital."
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Global Crossing
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