Cable and Wireless aiming for £700m Energis buy?

Cable and Wireless 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 telco 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 plum 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's hand last month.

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

"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 "rationalise" its staff in the second phase of the merger.

Such 'rationalisation' 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 per cent since the markets opened this morning.

Both Energis and C&W declined to comment.