UK-based telecoms operator Cable & Wireless (C&W) [CW.L] has announced it is selling its remaining 14% stake in Hong Kong incumbent PCCW [0008.HK]for USD400 million, thus ending its 15-year association with the SAR’s dominant phone company and 130 years of operations in the country. The London-based operator has reportedly offered investors 651.9 million PCCW shares at between HKD4.725 (USD0.605) and HKD4.78 each via email, valuing the stock at around 10% less than Tuesday’s closing price. The sale marks the latest phase in a dramatic u-turn implemented by the company’s new chief executive Francesco Caio. As reported by CIT yesterday, Mr Caio is changing tack to refocus on C&W’s core UK operations and will exit its loss-making US business. C&W reported a widening loss of GBP6.53 billion for fiscal 2003, the legacy of former CEO Graham Wallace’s attempts to turn the UK’s second biggest phone company into a global communications giant. Wallace oversaw an USD8 billion expansion programme which dramatically imploded after the internet bubble burst in 2000.
C&W is now faced with having to raise USD700 million to meet a bond repayment this month. However, although the bonds are convertible into PCCW shares the telco’s share price has plummeted too far to entice investors to exercise the option. Its only viable alternative therefore is to offload the stake in a market no longer seen as ‘core’ to its business. C&W’s decision makes a certain degree of strategic sense given the intense competition in Hong Kong since liberalisation. PCCW has seen its share of the fixed line sector fall from around 89% at the end of 2001 to under 82% a year later. Moreover, it is estimated that around 40,000 customers a month are switching suppliers – the vast majority of them to start-ups.