If Cable & Wireless was in any doubt about the storm awaiting it at next week’s annual meeting, today’s circular from Morgan Stanley is a timely reminder.
If the US investment bank can argue that the removal of the cap on bonuses is as much about rewarding executives for past performance as incentivising them, imagine what shareholders — which have no reason to pull their punches — will say.
Morgan Stanley raises a wider point. C&W shares have nearly doubled in the past year from 106p to 201.5p and they may have gone far enough.
Most of the upside at C&W depends on the performance of the UK business, but the £400 million of earnings targeted for 2010, against £189 million this year, is already looking out of reach. Revenues in the second-half last year fell 10 per cent.
The possibility of a bid for the UK arm remains, but the industry average multiple for such deals is five times earnings, implying a share price for the group in the most bullish scenarios of 230p.
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The removal of the bonus cap was seen as another reason for the shares to rise, given that management would work even harder. But if Mr Pluthero can pocket an extra £7 million for standing still, that argument looks weaker than ever.