C&W buys Digital Island for $340 million

British telecommunications company Cable & Wireless PLC (C&W) has agreed to buy Internet hosting and streaming media company Digital Island Inc. for $340 million in an all-cash deal, including $45 million of Digital Island debt, the companies announced today.

C&W offered $3.40 per share for Digital Island common stock, 8.7% more than its $3.13 value at market close Friday. The boards of directors for both companies have approved the deal, according to the statement. The cash tender offer is subject to customary terms and conditions, including U.S. regulatory approval and the tender of a majority of Digital Island's outstanding shares of common stock.

San Francisco-based Digital Island provides Web hosting, managed Internet services and content delivery services for corporate customers like Cisco Systems Inc. and Menlo Park, Calif.-based ETrade Group Inc. London-based C&W is buying the company to beef up its managed services offerings and to strengthen its portfolio of data centers in the U.S., according to the statement.

Digital Island's share price fell dramatically over the course of last year's economic downturn. The company's share value peaked in December 1999 at around $150 a share, giving it a market capitalization of $12 billion. One year ago, Digital Island's market value was down to $2.2 billion.

Both companies have suffered setbacks in recent months. C&W amassed a war chest of $9.9 billion through divestitures but announced job cuts of 4,000 employees in March because of the weakening global market. Digital Island posted losses of $1.1 billion last quarter and announced that it would lay off more than 200 of its staff of 940.

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