Up +2 at 472...still holding the cash...in the mean time watch cash-hungry circles...
LONDON (FTMW) - Cable & Wireless [UK:CW] has a problem most telecoms companies would love to have - a mountain of cash it has to get rid of.
If Cable & Wireless can't get rid of enough of its £7 billion to £9 billion cash pile quickly enough, then cash-hungry telecoms groups like British Telecom [UK:BTA] or Deutsche Telekom [DE:555750] or Telefonica [US:TEF] might decide to help out by launching takeover bids.
Analysts and fund managers say it's quite possible that these debt-ridden 'dinosaurs' could effectively raise cash cheaply by simply issuing their own shares in an all-share takeover bid for Cable & Wireless. Investors. Banks aren't keen on conventional rights issues or more debt issues at the moment.
The other class of predators could be financial buyers like private buy-out specialists Kohlberg Kravis Roberts or Hicks, Tate Muse and Furst, that could buy Cable & Wireless, strip out its cash and sell off the bits for a profit.
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Given the 64 percent crash in Cable & Wireless' share price in the last six months, many investors would look kindly at a takeover bid at a 30 to 40 percent premium.
But that depends on Cable & Wireless continuing to dither over how to get rid of the cash pile and its share price remaining in the dumps.
"The question is: do you really believe a company with this amount of cash will still be independent in a 12 months time with a share price below 500 pence," said Commerzbank analyst Taco Sieburgh Sjoerdsma.
Unlike its big former monopoly rivals, C&W chose not to invest heavily in buying expensive third generation mobile phone licences or to buy other consumer telecoms businesses in Europe. It focused instead on global business customers.
Surely they'll give it back or buy something?
Many analysts and fund managers have until now been sceptical about the likelihood of a predator taking out Cable & Wireless.
They doubted there would be enough cash and and a low enough share price to encourage buyers. Or, they thought, Cable & Wireless wouldn't leave itself cashed up and vulnerable long enough for such a bid.
But that was before Cable & Wireless' badly handled profit warning last month and the subsequent collapse in its share price.
The management's equivocal attitude to a cash buy-back has increased the fear Cable & Wireless would try to hold on to the cash.
Cable & Wireless' sale of its Australian operation, Cable & Wireless Optus, for £2.7 billion late last month and the sale on Monday of $1.5 billion worth of bonds exchangeable into Pacific Century Cyberworks [US
CW] shares has intensified the focus on the cash pile. See stories on Optus sale and PCCW bond sale.
Analysts estimate the cash pile at up to £7 billion to £9 billion, which would mean it's more than 50 percent of Cable & Wireless' market capitalisation of £13.1 billion.
Big share buy back no sure thing
The immediate assumption was that Cable & Wireless would return the cash, either through a share buy-back or a special dividend, particularly given the appetite for cash in such a bearish market.
"In the current climate, a return of cash would seem the sensible thing to do," says Barclays Stockbroker fund manager David Harbage.
"The best cause of action would be to return the cash to shareholders," said M&G's head of research John Hatherly.
But Cable & Wireless chief executive Graham Wallace was insistent after the Optus sale that he wouldn't be forced into a cash return. He says the company needs the flexibility for potential acquisitions. Cable & Wireless is expected to give more guidance on its capital management plans when it releases its year results on May 16.
Analysts are sceptical about whether Cable & Wireless could find the right targets and big enough targets to spend all the cash.
Confidence in Wallace's ability to pick the right one has also been shattered by the recent profit warning, which essentially said Cable & Wireless' big move into carrying business data globally hadn't generated the margins it hoped.
Nothing's big enough
Analysts say the only gap in Cable & Wireless' strategy is in web hosting in the United States, where it would struggle to spend more than $1 billion to $2 billion on acquisitions.
So Cable & Wireless would need a complete strategy change - another one - to be able to go on a serious acquisition spree. Cable & Wireless has just finished turning itself into global telecoms group serving business customers. Investors are reluctant to see another change with the current management.
Without a share buy-back of about 30 percent of the stock, Cable & Wireless may be forced to return its cash at the point of a hostile takeover gun.
"Perhaps that's the best thing to happen - for someone to take pre-emptive action to get them off their backsides," said M&G's Hatherly.
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