C&W: the mystery continues

BLUECHIIP

So Cable & Wireless is in talks about an alliance with France Telecom, or maybe a bid for Sprint, the US's third largest long-distance operator, which would cost upwards of $15bn.

France Telecom is part of a global alliance called Global One, which includes Deutsche Telekom and Sprint. C&W would become the "British relay station" for the partnership, as Michel Bon, France Telecom's chairman put it.

Despite the focus on the transatlantic ramifications of the move, the mystery surrounding C&W's future remains its majority stake in Hongkong Telecom, the most successful part of its far-flung assets. The jewel in the crown, there seems little reason for American chief executive, Dick Brown, to dispose of the stake. But it is understood the Chinese are eager to gain some sort of control in the business at the handover at the end of June.

If he were to sell, it would provide a substantial sum to fund ambitions. There is also a belief that he does not see an independent future for the company: it is too small, and too disparate, to compete effectively. Despite these reservations, the shares have been on a strong upwards path. After a peak of 546p early last year, on lapsed merger talks with British Telecom, the shares have recovered to 487.5p.

Perhaps the real concern is closer to home. C&W has embarked on a mega deal in the UK, in its bid to tie up the major cable suppliers. That will see C&W's Mercury phone business merge with Videotron, Bell Cablemedia and Nynex CableComms in a deal to be formally tabled this week. It will create the largest UK cable company - but the timing has been subjected to tough questioning, following the emergence of digital terrestrial television.

C&W Communications' pounds 5bn deal may have its problems - or it may turn out to be a winner. But what it has in common with any link-up with France Telecom is a miasma of cross shareholdings. Investors should be concerned at the possible drag on shares these alliances may have. The vision of Mr Brown may be subsumed into a cartel mentality of cosy complacency. It also blocks unwanted predators; fine, if you are performing well, less appealing when you are losing your way. None the less, the shares remain a hold at least, with the possibility that C&W may yet surrender its independence, at a premium price.