C&W Sale Rumors

The Cable & Wireless rumor mill has gotten active again, getting new life from a story in today's London Times that the company has decided to sell its struggling US unit. The paper doesn't cite a specific source for its story, which predicts the June 4 announcement of a "radical restructuring" of the company. But it says new CEO Francesco Caio has made his plans known to senior executives in recent days.

The US unit of C&W consists primarily of the former assets of Exodus Communications and Digital Island, which were both purchased in early 2002. There were widespread rumors last fall that the US unit would be shut down completely, but the Nov. 15 announcement turned out to be less radical than many pundits had predicted, with the company opting to shutter 12 of its former Exodus data centers in the US.

C&W shares tanked amid concerns that the restructuring hadn't gone far enough and that C&W management had done a poor job disclosing the costs of escaping leases on US data centers. That view is repeated in today's Times story: "A clean disposal would be welcomed by the City as a sign that Mr Caio is prepared to take a firm grip on the sprawling business built up by the previous chief executive, Graham Wallace, in pursuit of multinational business customers."

Once again, the rumors raise worst-case scenarios: "If the company cannot find a buyer, the US unit is likely to be shut down," The Times reports. "That would generate sizeable restructuring costs, estimated by Citigroup earlier this week to be around £600 million in cash, as the company will have to foreclose on property leases and pay off staff."

As a I said, we've heard this before. The rumor fatigue must be pretty high among C&W staff here in the US. Looks like there's more in store, at least until June 4.