MercoPress. South Atlantic News Agency

Cable & Wireless reveals US exit.

Cable and Wireless, the UK-based telecommunications operator, on Monday said it would use bankruptcy laws to exit its ailing US business, selling the US assets to Gores Technology for $125m.

C&W announced in June that it would quit the loss-making US internet hosting operations, but has spent the last six months seeking the least costly way to do so. It was feared that a withdrawal could cost the company more than £1bn.

However, following the agreement with Gores Technology, a private technology ad telecoms investment firm, C&W said the cash cost of the exit is expected to be no more than £300m.

Shares in C&W were up nearly 8 per cent at 139.4p in early trade, as investors welcomed the "quick and clean" exit, which has come sooner than the market anticipated.

"[The US business] has been a a major issue for a long time. At least now we can draw a line under it," said Martin Mabbutt, analyst at Deutsche Bank.

"Whatever the cash sums involved, it removes a big uncertainty and people can now concentrate on what is left of the company."

Francesco Caio, chief executive, reiterated on Monday that the company's top priority was to turn around its ailing UK business and to cope with increasing competition at its regional businesses, particularly in the Caribbean.

Gores Technology will buy the assets of Cable and Wireless America for $50m in cash and $75m in Gores technology loan notes. The final price will depend on closing adjustments based on performance targets related to working capital, revenue and overhead costs, but will not be lower than $50m, C&W said.

The purchase will be made under Chapter 11 section 363 of the US bankruptcy code, after C&W America filed for bankruptcy on Monday.

The Chapter 11 filing will allow the business to be restructured more easily, allowing it to eliminate or renegotiate onerous lease and contractual commitments.

Last year C&W unveiled property lease commitments in the US totalling £400m, which would have made a shut-down in the country very expensive.

Richard Lapthorne, chairman, said: "The use of Chapter 11 is a well-recognised procedure in the US to sell and restructure businesses, and should enable an orderly transition.

"The Cable and Wireless board believes that this route to exit our US operations is in the best interests of the group, shareholders, customers and employees."

While the transaction is being finalised, Cable and Wireless has agreed to provide the US business with $100m in funding, known as "debtor-in-possession" financing, to help it meet obligations to customers, employees and suppliers.

John Dubel has joined the US division as chief executive and Eric Simonsen has joined as chief restructuring officer and financial officer. Both Mr Dubel and Simonsen have been involved with turning round other Fortune 500 companies, including WorldCom.

C&W said it would not be able to determine the cost of the US exit until it was complete, but estimated that this should not be more than £300m, including the "debtor-in-possession" funds.

This is about £300m less than analysts' consensus estimates, and has raised some hopes that the company might raise its dividend payments next year.

However, Mr Lapthorne attempted to pour cold water over this speculation on Monday, saying that although the company had not yet worked out what level the dividend should be, C&W's priority was to maintain as strong a balance sheet as possible.

This, said Mr Lapthorne, would give management every option in future restructuring, including money to finance further redundancies.

C&W said it expected the asset sale to be completed by the end of the current financial year, at the end of March 2004. Most analysts had expected the withdrawal to drag on far beyond this point.

Cable & Wireless built up the US web hosting business at the height of the internet boom, under the tenure of Graham Wallace, the chief executive who left the company in July.

Despite ploughing £9bn into the plan to turn itself into a global internet carrier for multinational companies, C&W never turned a profit from the business.