Cable & Wireless Approaches Thus With Offer
LONDON -(Dow Jones)- UK telecommunications company Thus Group saw its shares jump over 20% Wednesday after its larger rival Cable & Wireless said it had approached the company about a possible bid for the company.
Cable & Wireless said the preliminary approach was not a firm intention to make an offer and there is no certainty an offer will be made.
Thus responded by urging its shareholders to take no action for the time being.
"Thus is confident in its future as an independent group, which offers an attractive combination of strong growth and future cash flow generation. The board remains focused on delivering maximum value for shareholders and will evaluate any proposal from any third party against the value that the company can deliver as an independent group," it said.
The value of the bid is likely to be in the region of GBP270 million to GBP280 million, according to one London-based analyst.
The news boosted Thus shares, and at 1407 GMT, the stock was up 23.6% at 136 pence, giving the company a market value of about GBP249 million.
Shares of Cable & Wireless traded down 3.3% at 158 pence, underperforming a 0.8% rise in the FTSE 100.
"I'm surprised. I'm not surprised that Cable & Wireless wants to buy something, but I'm surprised that they've gone for Thus. It's doing reasonably well on its own right, so it will command a higher price than some of its competitors," Martin Mabbutt, analyst at Nomura Securities said.
Cable & Wireless only last week said it was looking at acquisitions to strengthen its U.K. operations, which it expects to become cashflow positive this year. Executives said the company had been talking to virtual telecoms company Vanco, the Financial Times reported. "As a stand alone business, Thus doesn't generate a lot of cash, but in the right hands it could do well. It could be a good move for Cable & Wireless," Lawrence Sugarman, analyst at Dresdner Kleinwort said, adding that there are good synergies between the two businesses.
Thus, which is currently unprofitable, mainly provides fixed line and wireless telecoms services to businesses and the public sector. Its internet provider, Demon, largely serves small businesses. A takeover would boost Cable & Wireless' operations in these areas.
There has been persistent speculation that Cable & Wireless, which last week said net profit more than doubled to GBP191 million on higher margins, will demerge its U.K. and International operations to boost shareholder value.
In March, it raised its medium-term growth targets for its international unit, predicting strong growth in Asia and particularly India as those regions adopt new telecoms technologies. Its U.K. operations, meanwhile, have been struggling because of a drop in voice revenue.
The company used to be state-owned, providing telecommunications to the British Empire.
Earlier Wednesday, it announced a five-year GBP100 million deal with Tesco to create a new next generation telecommunications network for the retail group's U.K. and international operations.
Meanwhile, telecoms and internet provider Thus earlier this month narrowed its pretax loss for the 12 months to March 31 by 92% to GBP2.77 million as it made new contract wins across several sectors.
Analysts attribute the Edinburgh-based company's stock price falls over the past 12 months - the shares are down about 31% - to general weak market sentiment and underpeformance compared to peers.
It used to be owned by Scottish Power, but was demerged and listed on the London Stock Exchange in November 1999.
-By Steve McGrath and Erica Herrero-Martinez, Dow Jones Newswires; 44-20-7842-9353; erica.herrero-martinez@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 28th May 2008
