C&W set to pull out of German telecom tie-up

Cable & Wireless may issue legal proceedings against RWE and Veba, the two partners in its German telecommunications alliance, Vebacom, as speculation increases that the British group is to sever its ties with the venture.

The dispute is believed to be over documents drawn up when RWE, a leading German utility, opted to joint Vebacom, switching allegiances from its partnership with British Telecom's German ally, Viag. At the time the change was viewed as a coup for C&W and Dick Brown, its recently appointed chief executive.

However, a source close to C&W said that German and English versions of the heads of agreement documents differed in key respects, leading to a protracted wrangle over the terms. The three partners have yet to sign contracts formally to include RWE in Vebacom, formed when C&W linked up with Veba in 1995.

The source said: "This is undoubtedly the worst deal the company has done so far. It's created all sorts of problems. For the past three weeks C&W's input has in effect been put on hold while directors consider whether to issue legal proceedings."

The biggest stumbling block was over RWE's commitment to build a large- scale, DM8bn (pounds 3bn) fixed telephones network. Analysts estimated that if C&W left Vebacom it would not have to consolidate pounds 50m of losses in its accounts.

A question mark now hangs over Veba's 10.4 per cent stake in C&W, acquired in the original Vebacom deal and worth pounds 1.1bn. There is a suggestion is that Veba could sell the shares to Deutsche Telekom, allowing C&W to join Deutsche's "Global One" alliance.

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