Break-up on cards for Kingston

PHONE and internet group Kingston Communications is set to be broken up in a deal likely to see rival Thus take the lion's share of the business, including Hull's famous white telephone boxes.

The deal, in which Thus would offer shares for the business, would pave the way for Hull City Council to reduce the 41% stake it retained after floating the local phone network in 1999.

Energis and Colt Communications may also take small parts of Kingston, which last month abruptly sacked chief executive Steve Maine.

It was initially claimed that Maine departed after failing to achieve his promise to turn round Kingston's troubled business services division.

But City sources now say that Maine clashed with the board over strategy. Malcolm Fallen, formerly finance director but now acting chief, and other directors thought that a break-up of Kingston was the most sensible strategy. It is believed that Maine disagreed.

'Fallen has wanted to dice the company up for a while,' a source said. 'It looks as if he will now get his chance.'

Hull City Council, which has two members on the Kingston board, has been briefed. The local MP, Deputy Prime Minister John Prescott, MP, is also said to have been kept informed. 'Given that so many of his constituents own shares and the strong local interest, it would be very unlikely that John had not been briefed,' said one local.

Fallen is expected to be confirmed as chief executive within weeks and this is expected to be the starting gun for a new round of talks.

'There have been a number of approaches to Kingston over the past 12 months but it should be stressed that there is nothing active at this moment,' one source said.

Fallen is believed to have launched a cost-saving drive. 'He will find one or two City-pleasing moves to try to bolster the share price before accelerating the sale process,' the source added.

Thus refused to comment. 'There are always a lot of rumours in the telecoms industry and we don't ever comment,' a spokeswoman said.

But sources close to Thus said Kingston would be 'a good fit', while its consumer business generates significant earnings that Thus could use to fund expansion.

'That area of the country is a bit of a blackhole for Thus's network,' a source said. 'So Kingston would be a good fit.'

Representatives of Energis are also understood to have held talks with Kingston, currently worth £230 million, but chairman Archie Norman only wants small parts of the company.