Veba is to pay C&W DM2.21bn (pounds 820m) to buy back its 45 per cent shareholding in their joint venture Vebacom. C&W paid DM1.92bn for the stake in October, 1995. At the same time, C&W is paying Veba DM90m to buy out its half-share in Cable & Wireless Europe.
The strengthening of sterling against the mark since then means that C&W will get out more or less what it put in. However, the transaction will lead to an exceptional pounds 60m profit in this year's C&W results because it will not have to consolidate Vebacom's losses.
In a joint statement the two companies said they had agreed to go their separate ways because of "a difference in priorities". This is partly a reference to the decision to bring another German telecoms group, RWE, into the venture.
The move would have reduced C&W's shareholding to 22.5 per cent and entailed a pounds 3bn investment by the three partners to expand its fixed telephony network in Germany.
"We were uneasy about having such little influence over what would have been our second-biggest investment in Europe," said a spokesman.
C&W's intention now is to strengthen and consolidate the position in Europe of Cable & Wireless Communications - the joint telecoms business it is creating through the merger of Mercury and three of the biggest cable operators.
Among the ways C&W may strengthen its position is by providing European network facilities for large multi-national customers of C&W Communications and by taking advantage of deregulation to carry traffic for other fixed and mobile networks.
But some observers believe an alliance with Deutsche Telekom, France Telecom and Sprint of the US through their Global One partnership remains a possibility. This would mean that C&W was competing directly with BT both domestically and in Europe through BT's biggest Continental competitors.
The proceeds from the sale of the Vebacom stake will be used to reduce C&W's indebtedness, which stood at pounds 1.1bn at 30 September last year. As part of the agreement, Ulrich Hartmann, chairman of Veba, will resign as a non-executive director of C&W.
However, Veba said it intended to retain its 10.4 per cent holding in C&W which it acquired in the autumn of 1995.