Cable & Wireless Suitors Find Tax Exposure Off-Putting

by Jason Gorringe, Tax-News.com, London

10 February 2003

Analysts have suggested that UK telecommunications company, Cable & Wireless PLC is unlikely to become a takeover target until the matter of its potential £1.5 billion tax liability is cleared up once and for all.

In early December, ratings agency, Moody's Investor Services cut the company's long-term rating from investment grade to junk status, triggering a clause in an agreement with Deutsche Telekom, to which C&W sold its half share of mobile phone company One2One in 1999.

Although Cable & Wireless refused at the time to comment on the exact terms of the deal - upon which they were advised by Andersen, Enron's former auditor - it is believed that that the British group avoided paying any tax on the £3.45 billion which it received from the disposal of One2One, but promised Deutsche Telekom that it would meet any tax liability which occurred as a result of the transaction.

The company announced last month that it would deposit £1.5 billion from its dwindling £2.2 billion cash reserves into an escrow account in order to cover its potential tax liability. However, it may be many years before the debate over the sum is resolved.

Speaking to the Bloomberg news service on Thursday, Bear Stearns credit analyst, Barry Murphy asked: 'Why would you want to bid for this company when there's a potential £1.5 billion tax liability hanging over it?'

However, it was reported recently that Hong Kong-based PCCW did approach Cable & Wireless at the end of last year, although no offer was made and the approach was subsequently rejected by C&W chairman, Richard Lapthorne.

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