C&W ponders pounds 11bn merger proposal

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The Independent Online
CABLE & WIRELESS is considering a plan to merge part of its cable company, Cable & Wireless Communications (CWC), with its rival Telewest to create a cable television and phone giant with a market value of more than pounds 11bn and more than 2.6 million UK customers.

The telecommunications group is believed to be studying a proposal by the US merchant bank Merrill Lynch to split the residential and business services provided by CWC, where C&W owns a 53 per cent stake. Under the plan, CWC's residential division, which provides telephone lines and cable- TV channels to around 1.2 million UK households, would be merged with Telewest, the UK's largest cable operator with more than 1.4 million customers.

Following the merger, C&W would acquire CWC's business division. The disposal of the business assets, which have been valued at around $7bn (pounds 4.3bn) would end CWC's two-year spell as a quoted company.

Under the Merrill Lynch proposal, the merger of CWC residential services - which accounts for around a quarter of the firm's pounds 2.2bn turnover - with Telewest would be carried out through an exchange of the companies' highly rated shares, with no cash changing hands. The no-premium deal would leave CWC's minority shareholders, including the US telephone company Bell Atlantic, with stakes in the enlarged Telewest.

However, the injection of CWC's residential assets, valued by experts at around $7bn, would dilute the holdings of Telewest's shareholders, which include the US telecoms giant AT&T and the US cable group MediaOne, currently merging with its rival Comcast.

It was unclear last night whether C&W would retain a stake in the enlarged group. A complete exit from the residential cable market would be a bold move for Graham Wallace, C&W's new chief executive, less than a month after the decision to float One2One, the group's mobile phone joint venture, with MediaOne.

C&W, CWC and Telewest declined to comment yesterday.

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