Cable & Wireless shares slumped more than 40per cent this morning on massive trading in reaction to news that the telco could face a previously undisclosed potential tax liability of £1.5bn. At best the money - almost three quarters of C&W's available cash - could be in escrow for several years, the company admits.

On Friday Moodys cut C&W's rating to junk status, citing fears that the telco cold spend too much on reorganisation. This in turn triggered a clause in the 1999 agreement to sell C&W's half-share in One2One to Deutsche Telekom, which made C&W liable for DT's tax bill. Confused? So are we - the details of the agreement have yet to be released.

C&W believes that it does not owe any money to Deutsche Telekom and will start talks to mitigate the effects of this clause. It also argues that it was under no compulsion to reveal the clause - a remote possibility when the deal was struck to the outside world. And it has the backing of advisor KPMG in making this decision.

The reaction of the stock market and angry analysts today shows that there is little sympathy for this pitch. In recent months, many institutional investors have called for the head of Graham Wallace, C&W CEO. Surely he will go now. Once he's negotiated the inappropriately huge pay-off, of course. ®