Cable & Wireless approach sends Thus shares up 26%

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The international telecoms carrier Cable & Wireless (C&W) has approached its smaller Scottish rival, Thus, about a potential takeover in a move which could spark a fresh round of consolidation in the business telecoms industry this year.

C&W confirmed the approach yesterday after shares in Thus jumped by more than 10 per cent in early trading. The group said it "confirms that it has made a preliminary approach to the board of Thus in relation to a possible offer for the company". The news sent Thus's shares rocketing by 26 per cent to 138.5p, valuing the group at £253m.

Thus, however, responded yesterday that it was "confident in its future as an independent group, which offers an attractive combination of strong growth and future cash flow generation". The Glasgow-based group, which also owns the internet service provider Demon, urged shareholders to take no action. The FTSE 100 telecoms company added that it had not yet made a formal offer for Thus, and there was no certainty it would bid. Simon Weeden, an analyst at Goldman Sachs, said that should an offer emerge, it "would be the first material move towards much needed industry consolidation among the alternative carriers servicing the UK business market".

There are about 14 operators in the business communications sector, according to Neil Rickard, research vice president at Gartner, who added that the industry is preparing for a round of consolidation. "A total of 14 is a lot for the market to sustain, there will be more deals done this year," he said. On Monday, the Indian giant Reliance Communications beat C&W and BT to buy the UK-based virtual telecoms operator Vanco for £39m.

Mr Rickard said: "Thus is bigger than Vanco, it is one of the medium players in the sector and is pretty well known. This would be a positive move for Cable & Wireless."

It is not the first time Thus has been the focus of merger talk, as it was previously linked with its medium-sized rival Affinity.

Thus, which has a 1,700-strong workforce, provides telecoms services including broadband and high-speed internet to voice over internet protocol operations to big businesses.

The group was set up by ScottishPower in 1994 as Scottish Power Telecommunications Holdings, before it changed its name to Thus four years later. It spun off from ScottishPower in 2002, and made its first full-year profit this year.

C&W's shares closed down almost 3 per cent at 158.7p as Collins Stewart analyst, Mark James, wondered if it was the move shareholders had expected when the group talked about "value creation".

He said: "Expectations for C&W are for demerger of the UK and international arms and/or the return of cash to shareholders and the sale of various international assets. We're not sure a bid for £250m market cap Thus is quite what was anticipated."