Loss Of CEO May Put Cable & Wireless In Play;
Shrs Dn
Dow Jones Newswires -- December 11, 1998
Dow Jones Newswires
By BILL MCINTOSH
Dow Jones Newswires
LONDON -- The surprise departure of Chief Executive Richard Brown from Cable & Wireless PLC (CWP)
has dented the company's share price Friday, but doesn't seem to have undermined long-term investor
confidence.
Indeed, some industry watchers believe that Brown's leaving after 30 months increases C&W's
vulnerability to a take-over in the fast evolving global telecoms industry. By refocusing the
company on key franchises and raising GBP1.1 billion through a series of disposals, Brown leaves
C&W better positioned for growth and makes the second largest U.K. telecoms company a much neater
bid target.
Credit Suisse First Boston Friday reiterated a "buy" recommendation on C&W stock in the wake of
Brown's departure with a fair value target of 770 pence per share. More interestly, the broker
noted that C&W could probably command a takeout price of about 950 pence, valuing the company at
GBP23 billion.
In Friday trading, the price of C&W shares fell 31 pence, or 4.3%, to 694 pence on volume of 8.7
million shares by 1440 GMT after touching an earlier low of 685 pence. That made C&W one of the
biggest decliners in the FTSE 100 index, which was down 2.1%.
Late Thursday, Brown said he would leave C&W in January to become chairman and chief executive of
Electronic Data Systems (EDS), the U.S.-based computer services firm founded by H. Ross Perot. For
a second time in three years, Rod Olsen, Brown's deputy, becomes acting chief executive and is
understood to be taking immediate charge of the company.
Olsen is not, however, considered a candidate for the permanent job. He's already announced his
intent to retire.
"It's very unfortunate that Cable & Wireless is losing such an effective CEO," said SC Securities
telecoms analyst Claire Rothman, a view echoed widely among industry analysts and investors Friday.
"But our fundamental view of the company doesn't change. Dick Brown has effectively reorganized the
business and the prospects of the restructuring look very good."
Rothman, while not unconvinced that a bidder for C&W is hovering in the wings, acknowledged that
Brown's abrupt leaving puts the company in the merger spotlight. "Any business that loses its CEO
becomes more vulnerable," she said.
By any measure, Brown proved effective at reshaping C&W and making it something more than the sum
of its many, geographically disparate, parts. Rebranding those parts under the C&W banner was
undertaken, while a series of deals strengthened the company's key operating units.
He maintained a controlling stake in Hong Kong Telecommunications Ltd. (HKT), while selling a 5%
stake to mainland Chinese interests. In September, C&W raised its stake to 53% in Australian cable
network C&W Optus Ltd. (A.CWO) and engineered a A$6.7 billion flotation.
Another Brown inspired creation was Britain's Cable & Wireless Communications PLC (CWZ), a move
that joined C&W's ailing Mercury Communications unit with the local networks of three U.K. cable
companies. C&W, meanwhile, retains 54% control.
And in July, Brown showed speed in snapping up the regulatory forced sale of the Internet business
of MCI Communications Corp. for $1.75 billion. That swept C&W into the top tier of access providers
in the fast growing Internet sector.
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"I leave Cable & Wireless looking back over two and one half years and I have great pride as chief
executive for the achievements that were made by the people," Brown told CNBC Friday in an
interview. "I think people are energized. There is a momentum at this business."
Part of strengthening C&W saw Brown take a broom to the company's executive suite.
Through outside recruitment and internal shuffling, more than 50% of C&W's top 100 global managers
are Brown appointments. Among them are Western Hemisphere CEO Carl Grivner, formerly CEO at
Advanced Fibre Communications Inc. (AFCI), and Graham Wallace, CEO of the U.K. cable business,
previously an executive with Granada Group PLC (U.GAA).
Seven months before Brown's appointment in June 1996, C&W had been gripped by a venomous boardroom
battle that saw both CEO James Ross and Chairman Lord Young resign. And only days before he
accepted C&W's offer, the company terminated merger talks with its main rival, British
Telecommunications PLC (BTY).
Yet if C&W has recovered - the stock is up two-thirds since mid-1996 - apprehension lingered within
C&W about Brown's aggressive American management style and its emphasis on performance. Criticism
also surfaced over his appointment of Americans to replace British executives.
Brown, for his part, denied to CNBC Friday that he had instilled a management based on fear.
"I don't accept that at all," he said. "I mean the fact is people are energized. Look at all the
things we've achieved, the new businesses we're in, the embracing of the future and global
networks. This is done by people who aren't afraid to make mistakes and that's the kind of culture
we want."
Whoever succeeds Brown, clearly will inherit a different company than existed in the mid-1990s.
So far, no obvious candidates for the job have emerged. It seems likely C&W will employ
international recruitment consultants Russell Reynolds, a firm it has turned to frequently in
recent years.
Though C&W hasn't set a public deadline for appointing a new CEO, the speed of change in the
telecoms industry dictates that the process proceed rapidly. Analysts expect the matter to be
resolved by February or March.
As Brown himself remarked Friday: "Telecommunications is changing fast. If you're not fast as a
business, you're just not good."
-By Bill McIntosh; 44 171 832 9205; bmcintosh@ap.org
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