By Jeff Kimber Investors watching the worth of their telecoms investments dwindle in the pa...
By Jeff Kimber
Investors watching the worth of their telecoms investments dwindle in the past 12 months have looked at Cable & Wireless as a safe haven in the sector. Following a profits warning last week, however, it has incurred the wrath of the City, and the calls for change are getting louder.
Those calls range from a clear outlining of company strategy to reassure investors that C&W's plans are feasible to winding the company up completely and returning all equity to shareholders. Somewhere in between there is the possibility that, with its £4bn cash pile (set to rise to up to £6bn with the impending disposal of Optus in Australia), it could become a takeover target. And what better predator than cash-strapped crisis company BT?
Adverse market conditions mean that even if BT can spin off stakes in BT Wireless and Yell, it is unlikely it will receive the price first hoped for. Rumours abound that BT is hoping to raise £5bn from existing investors via a rights issue, but with shares down by two-thirds over the past year, investors with burnt fingers are unlikely to want to throw more money at the company.
BT and Cable & Wireless almost merged in 1996 but talks came to nothing. Now the two could be forced to broker a partnership, BT under pressure to find money, C&W under pressure to get rid of it. If BT can get its hands on C&W's £4bn war chest and flog off the rest, it may prove the kind of coup that keeps the two Sirs, Iain Vallance and Peter Bonfield, in their jobs as chairman and chief executive respectively.
C&W chief executive Graham Wallace has been lauded for his policy of selling off non-core divisions to concentrate on building the world's third-largest network for ISPs. In the current climate, where telcos are finding it nigh-on impossible to raise further funds Wallace is free to spend, spend spend.
The problem is, he isn't, and shareholders are becoming restless. Why should the company sit with £4bn in the bank while scaling back its network infrastructure spend and slashing jobs as competition in its main market heats up and prices therefore tumble? Why is their money better off in C&W's bank accounts than their own?
Nigel Hawkins, telecoms analyst at Williams de Bro‘, expects C&W to distribute some of its wealth through either a special dividend or a share buyback.
He said: "In the next few weeks I think they will make a commitment that with the share price having fallen so much the shareholders have not been forgotten and some of the benefits of the £4bn net cash position they have will find its way back to shareholders either directly or indirectly."
With 2.79 billion shares in issue, C&W could afford to distribute 100p per share and still have enough cash to carry on operating.
This may appease the anger created not only by the profits warning, which has knocked 33% off the company's worth in the last week, but also the way in which it was handled.
On 13 March Bloomberg quoted a C&W spokesman saying the company had "inevitably" been hit by the US slowdown and spending in fiscal 2002 would be significantly lower. The following day the company said he had been misquoted and was not talking specifically about the impact on C&W, just the general slowdown and the impact on companies with interests there.
Later on 14 March the same spokesman explained to Reuters what he had meant when misquoted earlier and assured the rival newswire that there was no intention to release a pre-results statement.
A quarter of an hour later, C&W issued a pre-results statement, slashing full-year estimates. Despite Wallace assuring the City in November of strong revenue growth, the company said that full-year revenue at Cable & Wireless Global, its largest division, will rise only 12% rather than the expected 20%.
Something has got to give at Cable & Wireless. Investors are angry and want some kind of positive action from management. Whether getting a quid a share back
or a marriage of convenience with BT will appease them is yet to
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