C&W on brink of pounds 500m phone deal in Australia

Cable & Wireless is on the verge of a pounds 500m-plus deal to fuel its overseas ambitions, with plans to take control of Australia's second- largest phone company.

The acquisitive UK group is believed to have approached other shareholders in Optus, the Sydney-based long distance and mobile operator, with the aim of raising its existing 24.5 per cent stake in the venture to more than 50 per cent. It would continue the C&W corporate plan, outlined last year by Dick Brown, its deal-hungry chief executive, to expand many of the group's overseas minority interests towards majority control.

C&W hopes to persaude Bell South, the US regional phone giant which also owns 24.5 per cent of Optus, to sell its shareholding in the company, raising C&W's interest to 49 per cent. Another large shareholder, Mayne Nickless, which owns 25 per cent of Optus, has already indicated it would be interested in selling part of its stake in Optus, enabling C&W to go above 50 per cent.

Analysts have recently raised their estimates of Optus's value to A$4.8bn (pounds 2.2bn), making C&W's stake worth pounds 535m. Optus plans to float itself on the Australian stock market later this year, a move that would enable existing investors to reduce their shareholdings.

Since its launch in 1992 Optus has played a similar role in the Australian telecommunciations market to Mercury, C&W's British subsidiary which was merged into the C&W Communications TV and telephony empire. Like Mercury's original role, Optus has enjoyed a duopoly with the state phone company, Telstra, which the Australian government intends to privatise. Optus also relies on Telstra's "local loop" network for most of its direct connections to homes.

Optus has been successful in growing its share of the highly competitive Australian phone market. Its fixed-line long distance revenues soared by 24 per cent in the six months to the end of last year to A$476m. New phone lines rose by more than 500,000, to almost 1.9 million, giving Optus 18 per cent of the market.

It has a stronger foothold in the mobile market, in competition with Telstra and Vodafone. Optus has 37 per cent of the digital market, with 634,000 customers, while revenues rose by almost 60 per cent in the second half of 1996 to A$530m.

C&W has already moved to increase its influence over the company by recently replacing the top management team with its own staff. Peter-Howell Davies, former chief executive of Mercury Communications, has ousted Ziggy Switkowski as Optus chief executive. Mr Howell-Davies is the third chief executive of the company in 18 months.

Two other C&W executives also joined the Optus board. Norman Gillespie has become the finance director while Christopher Weston has moved from his job as director of strategy at Mercury to play a similar role in Australia.

Though analysts have expressed concerns about Optus's strategic direction under Mr Switkowski, they said C&W's interest in taking control of the company made strategic sense. It would enable Mr Brown to use some of the proceeds of his recent deal to reduce C&W's stake in Hong Kong Telecom, the hugely lucrative phone company.

Earlier this month Mr Brown revealed the long-awaited deal with the Chinese government, selling a 5.5 per cent stake in Hong Kong Telecom for pounds 726m. It will reduce C&W's shareholding from its existing 59 per cent figure, a level widely seen as unsustainable after Hong Kong moves to Chinese rule next week.

Mr Brown also conceded that C&W could reduce its stake in Hong Kong Telecom below 50 per cent as the company gained what he claimed would be a unique foothold in China.

Analysts speculated that C&W would want to bolster the decision by increasing its stakes in other ventures in the Asia-Pacific region.