Still the same questions to be answered at C&W

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The Independent Online
Lord Young of Graffham has been so closely associated with Cable & Wireless's refusal to address the issue of its stock market undervaluation that his retirement has been seen as a panacea. Plainly it is not, however, for even though there is now a set date for his departure, the viability of the global telecoms federation is as unclear as ever.

For a company that remains wedded to the idea of a global network of companies, C&W's eagerness to spell out the economic benefits of the federation yesterday smacked of defensiveness; it would not have looked out of place in a takeover bid defence document. The figures do, however, put the debate on to a more scientific footing, even if outsiders can only take the company's word for the claimed pounds 90m a year boost to annual profits from better buying terms and shared product and service development.

If the figures can be believed, they are not inconsequential in the context of a company expected to make profits this year of about pounds 1.3bn. But they hardly represent a stumbling block to a takeover of the company by a global telecoms player such as BT or AT&T with even greater access to the claimed economies of scale.

It is easy to see why BT might be interested in C&W - it is keen to establish a presence in the Far East for its "concert" business telephony operation. Hongkong Telecom, mainly owned by C&W, would be an excellent launching pad. But there are enormous obstacles to overcome if such a marriage is to be consummated, with regulators at home and the Chinese government to be satisfied along the way. Furthermore, a change of ownership would certainly be used by the Hong Kong authorities as a way of screwing down on the relatively generous regulatory regime the company presently operates under.

Even so, there is a treasure trove of hidden value in C&W still waiting to be unlocked, and a sum-of-parts valuation can quite conservatively put a price of 600p a share on the company compared with the current 425p. Furthermore, the strategy conundrum remains as problematic as ever, with the company pulling in two different directions - the monopoly supplier in Hong Kong and other far-flung territorities, and the upstart attacking the monopoly in Britain. Lord Young or no Lord Young, investors will ask the same question. When will all that value be reflected in the share price?

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