Will Cableand Wireless Sell?
With LargeCash Reserves this could happen if ...
A regional newspaper, Trinidad and Tobago'sExpress, is speculating that only continued high profitabilitykeeps Cable and Wireless from selling its Caribbean operations,but an opening to competition could make such a sale a likelyoption.
In an article published Tuesday, 21 August,journalist Tony Johnson reported on C&W's sale of many ofits regional operations worldwide and comments by Chief Executive,Mr Graham Wallace, that such moves fit into a shift to businessservices.
He further wrote about a sell-if-the-priceis right attitude, and added that a threat to profitabilityfrom looming competition could send the regional services on theauction block.
Though inconclusive the article highlightsrecent worldwide action by this company, which holds a monopolyin most English-speaking Caribbean territories, and pointed toa possibility that in this part of the world situations couldemerge that cause C&W to decide it's time to sell based onthe apparent direction of that organisation.
The writer spoke with the Caribbean C&WChief Executive Officer for Regional Business, Mr Robert Lerwillwho reportedly said there was no intention of divesting companyassets in this geographical area.
According to the newspaper he said thatbehind the corporate focus on business Internet Protocol (IP),prominently featured in C&W promotions, there are really twobusiness units within Cable and Wireless plc, one known as 'Global',the other known as 'Regional'.
" he insisted that the regional business is still strategicand that there is no intent to sell off the Caribbean as somenewspapers have suggested," the article said..
Mr Lerwill said that each of the cases ofthe company selling off assets elsewhere was unique, and ratherthan representing a picture of a group divesting itself of regionalproperties, it shows a group divesting itself of companies inwhich C&W does not have a majority interest.
But, that was contrasted with a number ofstatements attributed to the company and to CEO at the UK HeadOffice, Mr Wallace, who reportedly spoke of a new direction ofthe company that takes it away from emphasis on provision of telephonecommunication services to one more of serving businesses on theinformation highway.
Since Mr Wallace assumed office in 1999the company began selling off in earnest a number of its assetsin many regions of the world.
The Express article found much similarityof Caribbean operations to one sold in Israel.
"October 1999-Cable and Wireless sellsits stake in Israel Telecom Bezeq. The consideration arising fromthe total transaction is US$630 million.
"At the time of the One2One sale, chiefexecutive Graham Wallace was quoted as saying: 'Completion ofthis sale on schedule is a further step in delivering our strategyto re-position Cable & Wireless by focusing on data and IPservices to business customers, simplifying the corporate structureand strengthening our financial position.' "
"Following the Israel deal, Don Reed,then CEO of Cable & Wireless Regional Businesses said 'wehave been very satisfied with our investment in Bezeq, and welook forward to continuing cooperation with one of the leadingcommunications companies of the region. Our decision to sell resultsfrom our primary focus on IP (Internet Protocol) and data servicesfor business customers for our future growth' ".
In March this year Singapore TelecommunicationsLtd bought Cable and Wireless' share in "Optus" forapproximately US$6 billion. Optus is the major provider of telecomservices to Australia.
The Express quoted C&W's press releaseon the deal: "In 1999, Cable & Wireless initiated a programmeto reshape the Group, focusing on the fast growing market of dataand IP services for business customers, primarily in the US, Europeand Japan. The implementation of this programme has resulted ina divergence between its strategy and Optus' strategy to providea full range of integrated telecommunications services primarilyto domestic Australian retail and business customers."
"Looking at this final divestment thereare close parallels to the Caribbean where C&W currently provides'a full range of integrated services primarily aimed at domesticcustomers" the Trinidad newspaper article said.
Also the comments made by the CEO appearto fly directly in the face of Robert Lerwill's claim that thereare 'two business units, the newspaper asserted.
The Express reported Mr Lerwill saying thesell offs reflect C&W's pragmatic approach to ownership, inthat in all these cases, attractive offers were made which theBoard considered represented value for shareholders.
Lerwill points to the Hong Kong deal which netted over US$6 billion.Today the value of that company is a fraction of what C&Wsold its stake for.
According to the newspaper such an approachto managing the assets of a company be justified only if the assetsdisposed represent no particular strategic value. All of the relevantstatements by the new CEO show that C&W, despite Mr Lerwill'sclaims, does not see local provision of telephony as strategic.
If a buyer did come along with the rightprice, there is no reason to think that C&W Caribbean wouldnot be sold.
The paper reported Mr Lerwill saying C&Wwas already sitting on too much cash (some US$10 billion) and"did not need the sale". It was observed, however, thatat the point C&W sold Optus, it was already a very cash richcompany.
The paper said that in 2000, C&W earnedsome US$1.2 billion in the Caribbean operations of which US$450million was profit.
"While the Caribbean region continuesto make returns on this scale C&W will value the group veryhighly and buyers may be scarce," was the opinion of theExpress newspaper.
"But as competition opens up in theCaribbean, these high returns are unlikely to continue and atthat point the likelihood of a sale will become more likely.
"In an article on July 29, in the UK'sIndependent newspaper, Heather Tomlinson estimated that the openingof the Caribbean to competition will wipe US$150 million fromthese profits.
"It is this precise situation-the openingup of competition and the gradual elimination of a monopoly-basedinflated profit, that caused C&W to sell Hong Kong Telecom.
"The Caribbean is therefore in a cleftstick. If competition increases, and artificially high profitsdecline, then C&W will look to sell."