Shares in Cable & Wireless soared in late trading yesterday, fuelling speculation that an overseas group may bid for the company which is already in the throes of pounds 36bn merger talks with BT.
Analysts said that potential predators could include Global One, a partnership between Deutsche Telekom, France Telecom and Sprint of the US.
Deutsche Telekom's finance director, Joachim Kroeske, said last week that the company had been in informal contact with C&W. While Deutsche later played down the prospect that it might bid, it stopped short of denying an interest. Deutsche is seen as a credible buyer for Mercury Communications, Cable's UK arm, but industry sources say that it lacks the financial muscle to bid alone for the entire group.
Stet, the Italian telecommunications operator controlled by the state holding company, IRI, has also confessed to have looked at C&W.
The rise in C&W's shares began early in the day after reports that the group may announce an agreement in principle to merge with BT before the necessary approval is given by the regulatory authorities. C&W's shares closed 24p up at 546p, valuing the company at pounds 12.1bn, and BT finished 6.5p higher at 379p on the view in the City that the talks were progressing well.
The negotiations moved up a gear earlier this week with the first formal meeting between BT chief executive, Sir Peter Bonfield and Rod Olsen, C&W's acting chief executive. C&W had been looking for a new chief executive since the departure in November of James Ross but the emergence three weeks ago of exploratory talks with BT have put such developments on ice.
C&W declined to comment on the surge in its shares but advisors pointed to the announcement of reorganisation of its business in central and eastern Europe to "put it on a sound commercial footing". The changes will result in a pounds 120m exceptional charge, which will be offset by a first-half exceptional profit of pounds 199m on the disposal of the group's holding in Mannesman Mobilfunk of Germany.
Stephen Pettit, executive director for Europe and mobile, said: "We have taken positive management action [in our central and eastern European businesses]. This is expected to have a beneficial impact on future trading. Nevertheless, having reassessed the market outlook, the expectations we had when we first entered the these markets have not been realised and we have written down the book value of these businesses to reflect the realities of the marketplace."
He said that the group is working to build relationships with other operators in the region where C&W has stakes in companies in St Petersburg, Belarussia, Moscow, Kazakhstan, Latvia and Bulgaria.
C&W stressed that the changes have nothing to do with negotiations with BT.
Separately, BT said it has bought Dutch information technology firm Rijnhaave Groep "to further strengthen its position in Europe".
The price tag for Rijnhaave which has an annual turnover of pounds 70m, is less than 1 per cent of BT's consolidated net assets.