UPDATE 1-C&W grows less confident over sale of Monaco business

Wed May 22, 2013 7:46am EDT

* Regulatory approval proving thornier than expected

* Core earnings rise 1 pct, in line with forecasts

By Paul Sandle

LONDON, May 22 (Reuters) - Cable & Wireless Communications said gaining government approval for the disposal of its Monaco business was proving more problematic than expected, but it had options available if the sale to Bahrain's Batelco fails.

Withdrawing from Monaco is a final step in focusing the British telecommunications company, which had operations spread from Macau to Britain's Channel Islands, on the Caribbean and Central America.

Finance Director Tim Pennington said the company knew that getting approval for the Monaco sale would be complicated and had given itself until 2014 to see it through.

"We are less confident than we were (that it will be cleared), but we have plenty of options," he said on Wednesday. "The underlying business (in Monaco) is performing well, so it's a good problem to have."

Cable & Wireless already sold a 25 percent stake in Compagnie Monegasque de Communication, which in turns owns 55 percent of Monaco Telecom, to Batelco, with an option for Batelco to buy the other 75 percent.

But it needs consent from the Principality of Monaco, which is co-owner of Monaco Telecom, for that deal to go ahead. If it does not consent, Batelco can sell its 25 percent back to C&W.

Monaco Telecom provides mobile, broadband, fixed-line phone and pay-television services. It also has an international business focused on developing markets which holds a stake in an Afghan mobile firm.

The business is a strategic asset for the small but wealthy Mediterranean principality, which is wary of a change of ownership that would leave it with an unfamiliar business partner.

Shares in Cable & Wireless Communications were trading 0.2 percent lower on Wednesday morning, in line with the FTSE mid-cap index.

Analysts at Jefferies said CWC would receive $445 million from Batelco in two stages if the deal goes ahead.

"If CWC is forced to look for other bidders, we believe Monaco would stimulate decent interest, insulated as it is from EU macro pressures, and generating clean OpFCF (operating free cash flow) margins of about 20 percent," they said.

C&W's update on divestments came as it posted a 1 percent rise in full-year core earnings and said it would cut costs.

Chief Executive Tony Rice said he would make $100 million of annual savings, or 13 percent of existing operating expenditure, within two years to improve margins and cash flow, particularly in its Caribbean business.

The group's origins lie in the early telegraph lines that allowed 19th century Britain to communicate with its overseas territories.

It was one of the first state assets to be privatised by former Prime Minister Margaret Thatcher in the 1980s. Vodafone bought part of the business after a 2010 demerger that left Cable & Wireless Communications as a smaller standalone entity with its main markets in the Caribbean region and Panama.

Following further disposals this year, Rice said it was now time to attack the cost base.

He is moving operational management to Florida, closer to C&W's core markets, though he said the company would remain domiciled in London.

The company reported earnings before interest, tax, depreciation and amortisation of $905 million for the year to the end of March on revenue up 2 percent at $2.89 billion.

Excluding businesses sold, core earnings were $589 million, also up 1 percent and just ahead of average analyst forecasts of $584 million.

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