Cable & Wireless could put US arm into Chapter 11

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The Independent Online

Cable & Wireless shares rose yesterday amid mounting speculation that the telecoms company may be about to put its US operations into Chapter 11 bankruptcy protection.

The move could dramatically reduce the group's exposure to its loss-making US web-hosting division, which could cost as much as $1.3bn (£800m) to close down.

A C&W spokeswoman refused to comment on reports that the web-hosting operations, bought for $1.1bn by its former chief executive Graham Wallace, would be put into bankruptcy protection. "We are in the process of reviewing our options and we will update investors when there is something to say," she added.

C&W's new chairman, Richard Lapthorne, is thought to be hopeful of making some form of announcement alongside the company's interim results next Wednesday. C&W shares climbed 4 per cent to close 5.25p higher at 134.25p.

C&W has been trying to find a buyer for its US web hosting operations, which consist of 12 data centres, for several months but without success. The main problem is the expensive long-term property leases they are locked into, which amount to an estimated £400m.

Entering Chapter 11 would enable C&W to exit those obligations at a much lower cost or renegotiate the leases downwards. However, the issue is complicated by the fact that the C&W parent company in the UK has guaranteed some of the lease payments. This means that Mr Lapthorne could be forced to place the entire company into Chapter 11 protection should C&W opt to go down that route.

C&W's web-hosting operations consist of two businesses - Digital Island, which was bought for $340m in July 2001 and Exodus, which was bought for $750m in February last year. Annual operating losses are running at $425m. The company is also seeking a buyer for its US internet business, which was bought from MCI for $1.7bn in 1998. Analysts expect C&W to report first-half operating profits of £209m-£252m compared with £172m last year.