Kingston Communications looks vulnerable after Maine steps down

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The Independent Online

Steve Maine resigned as chief executive of Kingston Communications yesterday after the telecoms company warned its corporate division, which sells telecoms services to businesses, was struggling.

Rival telecoms companies including Fibernet were said yesterday to be taking a close look at Kingston's so-called "inbusiness" division as speculation mounted that Mr Maine's departure could flush out a buyer for the group as a whole, sparking consolidation in the sector.

Mr Maine, who joined Kingston as chief executive from BT in 1997 and who earns £380,000 a year, is being replaced by Malcolm Fallen, Kingston's chief financial officer.

The pair are said to have been at loggerheads over how to run the inbusiness division. "There was definite conflict between him [Mr Maine] and the CFO. They had very separate ideas as to where inbusiness was heading," one City source said.

Mr Fallen, who joined Kingston from the Irish telecoms business Eircom where he had been chief financial officer, enjoys a good reputation in the City, although he is no stranger to controversy.

He left Eircom a week after a shareholder revolt over a £750,000 bonus he shared with that company's chief executive. His CV also includes a stint as finance director of British Biotech, the British biotechnology group that was once a star in the drugs development sector before falling from grace after its drugs development programme failed to live up to expectations.

After qualifying as a chartered accountant with Arthur Andersen, he also held a senior position at the controversial firm Polly Peck, formerly run by Asil Nadir.

Shares in Kingston, which were floated on the stock market in 1999 and which briefly graced the FTSE 100 index in 2000, closed down 10.3 per cent, or 7p, at 60.75p last night.

Shares in rival Thus, long seen as a potential suitor for the company, were nearly 6 per cent lower at 27.75p, while Colt finished 1.25p adrift at 95p.

Kingston, which issued a profit warning earlier this year that knocked 16 per cent off the share price, admitted yesterday that progress at its loss-making inbusiness division, which makes up about 60 per cent of revenues, had been "slower than expected".

"We therefore expect the growth in the contribution from our business to business activities to be considerably below our earlier expectations," Kingston warned. That, sources said, was the final straw for Mr Maine.

One analyst described Mr Maine as "more of a visionary than a business leader", while another said he had a reputation for being "difficult". That he had gone, analysts said, removed a major obstacle for a potential deal with a rival.

Another analyst thought it more likely that pieces of the company - whose biggest shareholder is Hull City Council - might get sold off.

Despite the upheaval, Kingston said yesterday that it still expected its revenues and underlying, or Ebitda, profits would fall within the range of current market expectations.

Michael Abrahams, Kingston's chairman, said he was "confident" that Mr Fallen, who will be interim chief executive, had "the skills, knowledge and energy" to drive the business forward.

Analysts at ING said Mr Fallen "has the financial background that will benefit Kingston currently".

The board shake-up comes a year and a half after Kingston parted company with its chief operating officer Ian McKenzie -- a move described then as part of a cost-cutting exercise. In January, Kingston also announced that Jane Hannah, the managing director of its inbusiness division, would leave at the end of March.