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C&W Buys Digital Island for $340 Million

Cable & Wireless announced Monday its $340 million buyout of Web hosting company Digital Island.

When the deal is completed in June, Digital Island will be a wholly-owned subsidiary of the U.K.-based telecommunications giant. The board of directors at both companies already agreed to the transaction, and assuming Digital Island's $49 million debt.

With roughly $9 billion in the bank, the relatively minor investment gives C&W an instant presence in an area it wasn't looking to develop for months: content delivery and eBusiness management.

Digital Island, with an impressive client list that includes America Online, Inc., Cisco Systems, Inc., Reuters and Universal Music Group, runs it's clients content using Footprint, a product that cuts down on the time it takes for customers to view images, dynamic content and streaming media.

It's an application many eBusiness company's are looking for in a provider, and one that C&W couldn't afford to overlook for very long.

Graham Wallace, C&W chief executive officer, said the deal is a good match for both companies.

"The combined company will be able to offer a comprehensive range of IP/data transport, hosting, content delivery an other value-added services to business customers in the United States, Europe and Japan," Wallace said. "It is an excellent match with our investment criteria of value, strategic fit and strong management committed to developing the business."

According to C&W officials, once the two companies have combined operations, the company will support more than $1 billion in daily transactions for companies like IBM, FT.com, Cisco, Microsoft and Yahoo! Europe. The company will also boast more than one million square feet of Web hosting space across North America, Europe and Asia.

In addition to content delivery, C&W can now provide a more impressive array of value-add services for its clientele. Services such as virtual private networking, pay-to-download, subscription-based Web sites and application services strengthen the company's business model.

Both companies expect to make significant revenue by cross-selling products and services to each other's customer base.

The acquisition also bolsters the carrier's Web hosting presence in the U.S., which has lagged behind in growth compared to Europe and Japan. Analysts expect Monday's announcement to be the first of several announcements this year targeted at increasing C&W's Web hosting footprint.

Chad Couser, C&W spokesperson, wouldn't confirm or deny that opinion, saying only "we continue to look at opportunities as they arrive. In today's market, there are a lot of good deals out there."