C&W volte-face leads to US exodus

Cable & Wireless is considering pulling out of the US just eight months after completing its largest deal in the country.

The troubled telecoms company is expected to announce its exit next month when it presents the findings of a strategic review at its interim results.

The news will prompt fresh calls for the resignation of C&W chief executive Graham Wallace, who masterminded the company's expansion into the US. This has led to four successive warnings on revenues and a collapse in the company's share price.

In February, C&W completed the £530m deal to buy Exodus Communications out of Chapter 11 bankruptcy protection. This transformed C&W into the world's largest internet hosting business, but shackled the company with burgeoning losses.

Mr Wallace now faces a conundrum. By retaining the US operation C&W is unlikely to meet its stated end-of-2004 break-even target for its Global division. However, there is a danger that if C&W pulled out of the US it would be quitting at close to the bottom of the market.

Either way, pressure on Mr Wallace to quit will intensify. This summer he negotiated a two-year employment contract. Therefore, if he lost his job he would receive a minimum £1.55m payout.

Stockbroker Investec Securities estimated that pulling out of the US would improve C&W's valuation. C&W's shares closed on Friday at 131.5p, giving it a market capitalisation of £3.1bn.

In the last year the City has lost faith in the company, which has seen 60.3 per cent wiped off its value against a 20.8 per cent drop in the FTSE 100 index.

Investec said that C&W is worth 185p-a-share, based on the value of the various parts of its business. Without the US operation, the company is worth 190p-a-share, taking into account an estimated £800m of restructuring cost, said the broker.