French to bid for Cable & Wireless

TELECOMS giant Cable & Wireless is the target of a £4bn takeover bid being prepared by France Telecom, it was reported today.

The rationale for the move is to consolidate the French group's diverse interests in the UK which include mobile phone operator Orange, the Sunday Telegraph said.

A 22% rise in C&W shares since the beginning of May suggests investors are expecting a takeover bid and it is thought chairman Richard Lapthorne would welcome an offer at the right price.

France Telecom is the second-largest telecoms group in Europe and owns broadband business Wanadoo as well as Orange. It is 41% owned by the French state.

The takeover plan is understood to be the brainchild of France Telecom finance chief Michel Combes, who wants to merge C&W's internet business Bulldog with Wanadoo.

A tie-up would also give Equant - the French group's corporate telecoms provider - access to C&W's multinational customers and to more profitable areas of the business market.

C&W has overhauled its operations in recent years, pulling out of the US market and heavily restructuring its UK business at a cost of thousands of jobs.

The telecoms carrier returned to the black at the bottom line during the year to March 31, reporting profits of £363 million compared with a deficit of £224m last time.

According to the report, bankers believe a France Telecom bid for C&W would face a number of obstacles, including its pledge to investors that it would spend a maximum €500m (£333.9m) on acquisitions this year.

But it is believed that France Telecom could make significant savings and may be prepared to sell off some of C&W's assets, such as its £1.5bn-valued overseas businesses, after it lands control.

Bulldog has completed the first phase of its development to gain 30% of the UK market and this has enhanced its appeal to groups such as France Telecom.

C&W is planning investment of £190m over three years in a new internet-based network - a move that it said would benefit customers and improve its margins.

France Telecom could take the view that the acquisition of a company that has already invested in local telecoms exchanges would be better than putting up significant sums of money for Wanadoo to make the same move.

The report added that France Telecom is planning to merge Wanadoo with Orange in the UK under the brand Orange Internet.end