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C&W shells out $340m for Digital Island

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Cable & Wireless has dipped into its £6bn cash reserves to buy Digital Island, the lossmaking Microsoft-centric ISP for $340m in cash and assumed debt.

Digital Island supplies managed Web services for Cisco, ETrade, FT.com and Microsoft, among others. Blue chip clients account for 70 per cent of its $140-$145m revenues and there's plenty of scope for consolidation to reduce Digital Island's costs, C&W says.

C&W is unusual - it's a telco with lots of cash. The company sold off the majority of operations at the top of the market to concentrate on the business-to-business IP market.

So far, the company has resisted calls from some quarters to return surplus cash to shareholders. But it says it will hand back money if it has not pulled off a big deal within a year.

Digital Island is not that big a deal, but there are plenty of opportunities out there for C&W. It looks like a prime candidate to pick up some of the pieces when PSINet finally implodes. ®

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