Cable & Wireless Communications slumps on surprise South American buy

Cable & Wireless Communications today surprised the City as it plans to spend $3.02 billion (£1.89 billion) on buying South American counterpart Columbus International, which counts US mogul John Malone as a top investor.

London-listed CWC’s shares slumped 8% as investors fretted about the deal that will double the telecoms group’s revenues but also treble net debt. CWC will pay $1.85 billion and take on $1.17 billion in debt.

Chief executive Phil Bentley said that CWC will gain expertise in fibre broadband and TV and the companies have a “complementary” fit across the Caribbean and Latin America. “It absolutely transforms our business,” declared Bentley, a former British Gas boss.

CWC is paying a multiple of 12 times earnings, which broker Espirito Santo described as “high”. Bentley said the multiple will fall to eight times, thanks to efficiencies and Columbus’s faster growth.

Virgin Media owner Malone, known as an aggressive deal-maker, will own 13% of CWC.

Bentley played down suggestions Malone and other Columbus investors could seize control. “If they want to buy more shares, they’ve got to bid for the whole company,” he said.