Cable & Wireless (C&W) yesterday washed its hands of the loss-making American operations that have plagued it for five years and promised shareholders no repetition of its profligate past when spending its remaining £1.6bn of cash, earmarked for rebuilding the telecommunications group.
The deal to sell the assets to Gores Technology valued the US operations at just $125m (£72m). C&W spent $2.5bn building the US operations through acquisitions made by Graham Wallace, its former chief executive, who was forced to quit in April.
Richard Lapthorne, the group's chairman, said Cable & Wireless America (CWA) would be placed into Chapter 11 bankruptcy protection at the request of Gores. This would allow it to restructure, lower its cost base and renegotiate lease liabilities.
Although it was unusual for a British company to use Chapter 11 to sell a business, Mr Lapthorne said it was a process many loss-making US telecoms groups had previously used. "We are not going to play American football using cricket rules. We are going to play American football using American football rules," he said.
"C&W has done what every other telecoms group has done in the US. If creditors know you are going into Chapter 11 that really focuses their minds."
The market reacted positively to the news, marking the company's shares up 4p to 134p. However, there are concerns that trying to ring-fence the US business through bankruptcy laws could still backfire, with creditors pursuing the UK parent company to recover losses.
"There is no guarantee they won't, but there is no guarantee the NatWest Tower won't collapse," Mr Lapthorne said. Asked about the risk of litigation, he said: "Who knows? You can never predict that."
CWA has outstanding lease liabilities of £650m owed to property companies which housed its data centres. Under USbankruptcy laws they can expect a maximum of 15 per cent of what they are owed.
C&W said the remaining cost of exiting the US, up to the completion of the Gores deal, would be no more than £300m. At its interims in November the company said the US operations burnt £150m of cash in the first half and revealed a further £40m restructuring and exit charge.
The £300m of costs announced yesterday includes £100m of working capital for the business underwritten by C&W. It also said the sale would hit group operating profits by £10m-£15m in the final quarter.
Under section 363 of the US bankruptcy laws, the so-called "stalking horse" provisions, the courts can still seek higher bids for C&W's US assets and reject the Gores deal.
Francesco Caio, C&W's chief executive, said the company could now concentrate on building a profitable operation based on its UK operations.
NEW TEAM PUTS CABLE & WIRELESS UNDER THE KNIFE
January: Richard Lapthorne appointed chairman to replace Sir Ralph Robins. Instigates management purge, ousting chief executive Graham Wallace who accepts six-month, £387,500 payoff. Francesco Caio (right) appointed successor. Joined by other luminaries including Lord Robertson, secretary general of Nato.
February: C&W secures independence by beating off unwelcome takeover threat from Pacific Century Cyberworks.
March: Lapthorne cuts deal with Inland Revenue over 10 years of outstanding tax affairs for £380m. Releases £1.5bn cash pile held in escrow to cover liabilities
June: Announces annual loss of £6.5bn, suspends dividend for a year and decides to exit United States business to refocus group mainly on UK and Caribbean operations.
December: Announces sale of US operations to Gores Technology for $125m to help pay off American creditors. Sale executed by placing American operations in the hands of US bankruptcy courts. Lapthorne says C&W can now concentrate on using its cash pile to build profitable business.Reuse content