Digital Island Acquired by Cable & Wireless

Cable & Wireless (www.cw.com) announced that it would offer to acquire all of the outstanding shares of Digital Island ( www.digitalisland.com) in an all-cash transaction at a price of US$3.40 per share of Digital Island common stock. The transaction values Digital Island at approximately US$340 million, including approximately US$49 million of net debt. The boards of directors of both companies have unanimously approved the transaction.

Once the acquisition is completed, Digital Island will become a wholly owned subsidiary of Cable & Wireless, headquartered in San Francisco and led by the current Digital Island management team. The companies state that the transaction will be finalized on or around May 21, 2001.

Cable & Wireless, a British telecommunications company that foresees large growth in IP data, intends to combine its network with Digital Island's to become a global provider of end-to end IP-based solution. Cable & Wireless also states that its acquisition of DI will allow it to roll out more value-added services on its network.

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

Digital Island's stock price has been as low as $1.25/ share and as high as $57.37 in the past year, and is currently trading up 7% on the day at $3.37. Digital Island has been struggling recently with its earnings, forecasting a full-year EBITDA loss of $197 million to $203 million on revenues of between $140 million and $145 million in its second quarter release.

Cable & Wireless states that it expects its acquisition of DI to dilute its earnings in the near term but become accretive by the end of the third year. The transaction is also expected to create significant value over the medium term through improved revenue growth, EBITDA growth and improvement in EBITDA margins.