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C&W buys Digital Island
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May 14, 2001: 5:52 a.m. ET
Cable & Wireless adds to data services with $340 million Digital Island buy
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LONDON (CNN) - British telecoms company Cable & Wireless is buying the Internet infrastructure and services provider Digital Island for $340 million.
C&W, which has amassed a £6 billion war chest through the sale of non-core assets, is paying $3.40 in cash for each share in the struggling San Francisco-based company, whose stock was as high as $148 in December 1999.
The price represents an 8.7 percent premium on Friday's closing price of $3.13. Digital Island announced a second-quarter loss of $1.19 billion last week after writing off more than $1 billion in assets. It is cutting its workforce by 22 percent.
C&W has been refocusing its business from traditional telephone services to providing IP (Internet Protocol) data networks and services for corporations. Digital Island, which provides speedier and more reliable networks for business, will strengthen C&W in areas such as content distribution.
"The combined company will be able to offer a comprehensive range of IP/data transport, hosting, content delivery and other value added services to business customers," said C&W chief executive Graham Wallace in a statement.
Digital Island chief executive Ruann Ernst is to stay on as the company becomes a business unit of C&W. "By combining the innovations of Digital Island with the world class IP network and financial backing of Cable & Wireless, Digital Island gains renewed momentum," she said.
The announcement of the deal comes ahead of the release of C&W's annual results on Wednesday.
Its timing supports newspaper reports that the company may not now go ahead with an expected share buyback or special dividend for shareholders to reduce its cash pile.
C&W, which is also reported to be interested in the U.S. Web-hosting company Exodus, could instead continue its bargain hunting among the many data hosting companies and networks that are struggling to survive because of over-expansion, the falling price of bandwidth and the less-than-expected demand for their services. 
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