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Cable and Wireless on Friday threatened to pull the plug on its proposed takeover bid for Energis, its smaller telecommunications rival, after a group of hedge funds controlling a significant part of the privately held company's junior debt threatened to block the deal unless the offer is increased.
Richard Lapthorne, C&W chairman, has refused to bow to pressure from the debt-holders and gave them a deadline of Monday to accept the offer, which would value Energis at up to £830m. The bid has the unanimous backing of Energis's board.
C&W said: “The acquisition proposal will not be increased in value under any circumstances and will fall away if 75 per cent of the holders of Energis' debt have not signed the acceptance by 5pm on Monday, August 15 2005.” Merrill Lynch and a group of nine hedge funds, co-ordinated by Close Bros and thought to include Centaurus Capital, claim to control more than 25 per cent of Energis' junior C-tranche debt. Slightly more than three-quarters of debt-holders must approve the deal to trigger a buy-out clause of the remaining stakeholders.
John Pluthero, Energis chief executive, has spent the past two days holding meetings with the funds the company has been able to identify to try to convince them to accept the offer.
The debt-holders are being offered 80p in the pound plus an additional payment of up to 10p deferred for up to three years and linked to C&W's share price.
One source close to the negotiations said C&W had already increased its offer by close to £200m and would not go any further. The hedge funds are thought to be holding out for a further £40m, representing the par value on the £300m junior debt tranche and rolled-up interest of about £40m.
Energis is owned by a consortium of lending banks, which took control of the UK's third biggest fixed-line telecoms operator after it became insolvent three years ago. The core lenders regard C&W as Energis' only likely suitor.
The source said: “The hedge funds have to understand that a British company making this kind of statement is not about to suddenly increase its offer. Half the Cable and Wireless board would probably have to resign if it suddenly did.”
One of the hedge funds insisted that C&W's offer was “fundamentally unfair at something short of £700m …including a fairly complicated derivative” and could be raised to par. “The group holding the debt think Cable and Wireless is not offering full value.”
Talks are likely to continue over the weekend.