Incoming Cable& Wireless chairman out, CEO under pressure

Braden Reddall

LONDON: Corporate telecoms group Cable & Wireless has announced that its chairman-designate has quit the company before taking up the post of the chairman in the company, fuelling speculation that CEO Graham Wallace would follow him out of the door.

The British company said David Nash, 62, had decided to retire from the board at the end of next month rather than take up the chairman's post. Nash stepped down after talking to shareholders, some of whom are demanding a management shake-up. Nash was supposed to replace Ralph Robins as the chairman, who had been due to retire at the end of December after turning 70 this year. However, Robins might now stay on to oversee the search for an external replacement.

Nash, who joined the C&W board in September 1995 and has served as chairman of the audit committee, is linked with Wallace, who has incurred the wrath of shareholders for his costly move into corporate web hosting. "Some shareholders wondered why as the chairman of audit committee, Nash never seemed to challenge Wallace's expansion strategy," BNP Paribas analyst Francois-Pierre Arth said, calling Nash's departure a "step in the right direction".

The market seemed to agree, pricing C&W's shares 1.8 percent higher at 83 pence in late morning trade. The stock recently plumbed a 19-year-low after a series of setbacks. "The market is likely to view this announcement as a precursor to more change in the board, senior management and possibly strategy notwithstanding short-term uncertainty," Schroder Salomon Smith Barney said in a research note.

Two weeks ago, Wallace was forced to rein in C&W's American and continental European operations, cutting 3,500 jobs in a move to save 600 million pounds a year but will cost 800 million. This expense led many analysts to believe C&W would have to pursue its Internet strategy no matter how bad the market remained.

The international restructuring was a climbdown for Wallace after a year of U.S. expansion at the Global division, which offers website hosting and telecom services. C&W shares hit 153 percent earlier this month on hopes it would abandon the U.S. and continental Europe entirely. Disappointment over that and the heavy costs led to a heavy-share sell-off.

Nash told directors he believed it would be inappropriate for him to become chairman under the circumstances, and the directors decided to look for an external chairman. Although other planned changes in the directorships will be put on hold during the search, the board's non-executive directors have each offered to step down before the next annual general meeting at the chairman's discretion, C&W said.

C&W's restructuring accompanied a steep drop in first-half earnings before interest, tax, depreciation, amortisation (EBITDA) and exceptional items to 172 million pounds -- half last year's level, though above analyst forecasts. The cuts followed a two-month strategic review, and are designed to put Global on track to become cash flow positive by March 2004, regardless of whether the market recovers.

Global will be left with 9,000 staff. Most will be in the United States, where Wallace spent $1 billion in the past year buying two web-hosting firms, Digital Island and Exodus. C&W also wrote off 2.7 billion pounds in goodwill and 787 million pounds on fixed assets at Global, leading to a 4.4 billion-pound loss for the half.

© Reuters