C&W outlines proposed company split

Cable & Wireless, the company behind Caribbean communications service provider LIME, announced details of its planned demerger which, subject to shareholder approval, is set to be completed in March 2010.

The restructuring of the telecommunications company will effectively create two new companies, C&W Worldwide and C&W International.

The split of the companies was put on hold last year after the financial crisis depressed conditions in the capital markets.

However, C&W has already operationally separated its International and Worldwide businesses ahead of the proposed demerger.

CWI offers fixed line, broadband and mobile services across 38 markets in four operating regions, including the Caribbean, Panama, Macau and Monaco.

In response to a query by the Compass about the implications of the demerger for C&W business units in the Caribbean, a spokesperson for C&W said: ‘The demerger itself will not lead to any changes in CWI’s businesses, including LIME. All business units, however, remain subject to their own market conditions and performance targets.’

Specifically with regard to the Cayman market he stated: ‘It is business as usual for LIME in Cayman.’

In its most recent quarterly results report C&W lowered its fiscal full-year guidance for CWI due to challenging market conditions in the Caribbean.

‘The Caribbean economy has suffered from the global recession due to its heavy reliance on tourism putting significant pressure on our Caribbean revenue and gross margin,’ the company said in its half-yearly report for the six months ended in September 2009.

‘Since the summer we have seen further deterioration in conditions there, with no immediate signs of improvement. The fall in the top line has more than offset our efforts to maintain Caribbean EBITDA despite our tight cost control,’ the report stated.

Both companies, C&W Worldwide and C&W International, will be listed on the London Stock Exchange, the company said in a press statement.

Current C&W shareholders are to receive shares in both companies.

The UK-based worldwide arm will be run by Jim Marsh, with John Pluthero as chairman. CWI will be headed by Tony Rice and chaired by Richard Lapthorne.

Current C&W chairman Richard Lapthorne commented on the demerger plans: ‘Since 2003, we have successfully transformed the business to the point that we now have two strong businesses that are ready to stand on their own as separately listed companies.’

He stated earlier this month that the Board believed a demerger is the right structure to increase further growth and value for shareholders by enabling both businesses to pursue their strategies independently.

Following the demerger the individual units may also be more attractive to prospective buyers than the current company as a whole, Mr Lapthorne admitted in an interview with the Financial Times.

In order to refinance existing debt and fund both companies with sufficient operating capital before the demerger, C&W plans to raise £200m through a 5-year convertible bond issue and arranged £300m in bank loans for the Worldwide arm and US$500m for CWI.

The company said both businesses are expected to have sufficient cash and credit lines to refinance and fund their respective strategies for three years following the demerger.

A contentious issue that still needs to be resolved is the division of assets and liabilities of the company’s pension fund between the two units.

At the end of the third quarter 2009 the pension scheme accounted a £305m deficit and the company agreed to inject an additional £75m over the next three years into the scheme.

C&W said it expects to divide the pension fund assets and liabilities in equal measure between Worldwide and CWI.

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