British telecoms group Cable and Wireless (C&W) is to tap the bond market to fund its demerger by April next year, it said today as it laid out plans to tie in senior management and for a pension agreement.
Under the plan, C&W will demerge the worldwide unit, which offers business communications across Europe, Asia and the United States, to leave the International division to provide fixed-line and mobile services in Caribbean, Macau, Panama and others.
Cable & Wireless, which put on hold its demerger plans a year ago due to the difficult market conditions, said it plans to put in place around £1.1 billion of new and replacement cash and bank credit lines to ensure the separation.
As part of that refinancing, Britain's second-biggest corporate telecoms provider after BT will also raise £200 million through a convertible bond.
Analysts welcomed the amount of detail about the plan, after the company failed to give much information at their recent first half results, but said the fact the group was still holding talks with the pension regulator was a risk.
C&W said its pension fund had an IAS 19 deficit of £305 million at the end of September. It is in talks with the scheme trustees and is looking to reach agreement on any additional funding that is needed.
It expects that approximately half the pension assets and liabilities will be transferred to Worldwide, with the other half remaining with International.
Analysts also questioned why the group had opted for a convertible bond, saying it would cause a dilution, but welcomed the handling of the management incentive scheme which should tie the senior executives into the company for the longer term.
The group said that, subject to shareholder and participant approval, the incentive scheme for the senior management would not vest on the demerger as had been expected but continue to run until the end of the financial year 2011.
C&W said Richard Lapthorne and Tony Rice would take up the roles of chairman and chief executive respectively at International while John Pluthero and Jim Marsh would be chairman and CEO of Worldwide respectively.
Execution analyst Will Draper said postponing the vesting date could also benefit the management even further as either unit could be seen as a possible takeover target, lifting its new shares, once it has demerged.
"I like the amount of detail in the statement, it's very thorough but the pensions talks and the convertible bond are negatives," Mr Draper told Reuters.
Analysts at Cazenove welcomed the expected completion date and incentive scheme changes and said management must be confident they can reach an agreement on the pension payments.
Shares in the group, which has a history dating back to the 1860s when telegraph cables were first laid overseas from Britain, were up 3.83 per cent at 0936 GMT against a FTSE 100 down 0.4 per cent.
Reuters