FINANCE AND INVESTMENT
By CUSTOS
THE " balanced scheme of reconstruction " now announced by Sir Edward Wilshaw and his co-directors on the Cable and Wireless board fulfils my recent forecasts that there would be hard news for the holders of the Preference stock of Cable and Wireless (Holding) and comparatively generous treatment for Preference stockholders in the Eastern Telegraph Company. In the light of the recent ex- perience of Preference stockholders in the ScsIttish Motor Traction Company it was pretty obvious that Preference holders in Cable and Wireless (Holding) were wide open to a heavy blow. Faced with the necessity of appeasing his Ordinary stockholders by offering them the most generous terms at his command Sir Edward Wilshaw has shown himself a stern realist in proposing to repay the Preference capital at par. Admittedly he offers the sop of an option to take £65 in cash and £4o in 3 per cent. Savings Bonds, giving them, allowing for the market discount on the Bonds, a total of about £1021, but that is a trivial concession to investors who bought the Preference stock at substantial premiums in recent years. The unfortunate fact is that recent legal judgements have made it clear that Preference stockholders in this position have no votes and no redress. In the market the price has fallen from Do7 to £99 aninevitable adjust. ment.
CABLE ORDINARY OUTLOOK
Thanks to this harsh treatment of the £16,766,591 of Preference stock, the holders of the £6,883,103 of Cable and Wireless Ordinary are offered what, in my view, should be considered attractive terms in the reorganisation plan. For each Ltoo of stock at present held holders are asked to accept L125 nominal of 3 per cent. Savings Bonds, 1965-75 ; £75 of 4 per cent. Cumulative Preference stock and £75 Ordinary stock in the reconstituted holding company which is to carry on business as an investment trust. Allowing for the market discount at present quoted on the Savings Bonds, the worth of the total allocation would appear to be about £250. I arrive at that figure by valuing the Savings Bonds at their present market worth of Luc, putting a price of ,C70 on the L75 nominal of 4 per cent Preference stock and a price of £65 on the £75 nominal of Ordinary. These seem to me to be reasonable valuations, having regard to the fact that on the basis of the estimated net income of the trust com- pany the Preference dividend would be covered about three times over, leaving earnings of 7} per cent, on the Ordinary capital. The question arises: should Ordinary stockholders be satisfied with these terms or should they press for an outright liquidation? It seems to me that whatever case there was for liquidation has been greatly weakened by the unfavourable turn in stock market con- ditions in recent months. These are not the times in which invest- ments running into many millions of pounds could be disposed d at satisfactory prices. I feel, therefore, that, having regard to the comparatively generous deal which the Ordinary stockholders are offered, they should be content to throw in their lot with Sir Edward Wilshaw and vote in favour of the scheme. At today's price of f230 the stock is, in my view, rather undervalued. It should be held.
EASTERN TELEGRAPH PREFERENCE
The position of the La million of Eastern Telegraph Preference in the proposed reconstruction scheme is, in many ways, the most interesting of all. Although there appears to be some slight doubt as to the legal right of Preference holders in this company to share equally with the Ordinary stockholders in a distribution of the assets, the scheme fulfils expectations in making a compromise offer. Holders are invited to accept a repayment of £too in cash, plus premium of £50 in 3 per cent. Savings Bonds, 2960-70. Since these Bonds arc quoted in the market around 93} the total sum offered works out at approximately £147. This is well below the cur break-up value of the stock but I imagine that the majority ode holders will be prepared to accept the board's offer, rather than bring a legal action for liquidation, which, of course, would inevitably lead to a counter-action by the company in the Courts challenging the Preference holders' rights to rank equally with the Ordinarl stock. This seems to me to be a case in which discretion is the better part of valour. Since the announcement of the terms the market quotation has fallen back slightly from Luso to LI139•
this level the stock looks attractive for those who are prepared to put it away and see things through.
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