Cable and Wireless parted company with its chief executive on Tuesday, as the telecommunications operator announced a restructuring, widely seen as preparing it for a break-up.
The move was accompanied by a second profits warning in under three months, with the group saying previously undisclosed “non-recurring items” of £70m would account for almost half its UK earnings for the year to March. It said earnings before interest, tax, depreciation and amortisation in its UK business for the year to March 2007 would be no higher than the current year, which analysts estimate at about £150m.
Francesco Caio, chief executive, will leave the group in April after the board decided to scrap his role and create two “self-contained” units to run the UK and international operations.
Mr Caio is on a 12-month rolling contract and is expected to leave with a payoff of one year’s salary. He received a basic annual salary of £700,000 and a bonus of £854,000 last year. Almost all his 4.6m share options are at strike prices above 103.7p.
Analysts believe Mr Caio was pushed after it became apparent that the UK business was in worse shape than C&W had led investors to believe. Richard Lapthorne, chairman, yesterday described the UK as “the villain of the piece”. The business has suffered intense competition.
John Pluthero, head of the UK business, will now report directly to Mr Lapthorne, as he tries to turn the unit around. Harris Jones will run the international business. The restructuring will see most corporate functions disappear, putting up to 160 jobs under threat at head office in Bracknell. Analysts expect to hear of more job losses when management updates on progress this month.
Mr Lapthorne insisted on Tuesday that the UK business was not ready for a demerger. Analysts estimate it could take two years to prepare the business for sale.
Shareholders welcomed the split, however, with one top 10 investor saying it meant the “UK business could participate in further consolidation”. But the investor stressed that a deal was not imminent: “The company wouldn’t accept a private equity valuation . . . now.”
C&W’s shares fell almost 11 per cent, closing 10¼p lower at 102¼p. Meanwhile, the cost of insuring C&W debt against default surged. Spreads on five-year credit default swaps, a type of insurance against default, rose more than 10 per cent
Additional reporting by Joanna Chung and Kate Burgess