Cable & Wireless to snap up Energis?

Takeover rumour is once again ripping through the UK telecoms sector, with Energis the target this time

Cable & Wireless (C&W) is once again the subject of consolidation speculation — although this time, the telco looks ready to buy rather than be bought.

According to reports, C&W has rival Energis in its sights. The pair are thought to be in early talks about the acquisition, with a potential price tag of some £700m being discussed.

Energis is already burdened with considerable debts after a rescue bid by banking consortium Chelys in 2002 , although an acquisition would allow C&W to get its hands on Energis' roster of clients, which includes Boots and the BBC.

With a cash pile of some £1bn, C&W would be readily able to finance such a deal. However, the company's finances have also put it on the receiving end of an acquisition rumour, when France Telecom was thought to be a suitor for the company last month.

According to Mike Cansfield, analyst at research firm Ovum, a tie-up with Energis would be more logical than a union with the French telco for C&W.

"Energis is a struggling medium-sized player in a scale economy business. It needs to bulk up and it can't do that by itself. Its only route to salvation is to get bought," Cansfield said. "Cable and Wireless will be able to strengthen its presence in the corporate space."

Cansfield added that while it's likely the two companies' business functions, such as customer support, will initially remain intact, any resultant single telco is likely to streamline its staffing structure in the second phase of the merger.

Such streamlining has already become somewhat of a fixture at the telecoms firm — Cable and Wireless recently announced it will be making 480 staff redundant over the coming year. The news followed the announcement of 600 redundancies made in November 2004.

The markets reacted favourably to the speculation regarding a deal, however, with Cable and Wireless' share price rising by over three percent since the markets opened this morning.

Both Energis and C&W declined to comment.