Cable & Wireless yesterday clinched the takeover of Energis after surviving an eleventh hour attempt by rival bidder Thus to scupper the telecoms tie-up.
The deal, which is worth an initial £594 million, will add a clutch of corporate customers, including the BBC, RAC and Royal & Sun Alliance, and strengthen C&W's position in the highly competitive telecoms market.
However, C&W, the country's second largest fixed line operator behind BT, warned that the combination of the two businesses would result in the loss of 700 jobs by March 2008, as it looks for £80 million of annual savings.
Such savings would help it to invest in new technology and new products.
The deal was almost derailed after some holders of Energis debt threatened to block the deal if the price was not increased. C&W gave the funds until 5pm on Monday to back the takeover. Earlier that day Glasgow-based Thus tabled a surprise reverse takeover bid worth £800 million.
Thus is a quarter the size of Energis but had raised £600 million in cash with the rest set to be paid in its shares.
As well as the initial £ 594 million, C& W has pledged to inject some £35 million to meet the company's short-term capital requirements.
It plans to retain the services of Energis chief executive John Pluthero, the former Freeserve boss, who will be appointed executive director of the UK business and join the C&W board.
The deal continues the shake-up of Cable & Wireless following a restructuring that led it to pull out of the United States.
It has focused on developing its UK operation and recently expanded through the acquisition and subsequent roll out of internet service provider Bulldog.
Chief executive Francesco Caio said the addition of Energis created "a stronger player with the scale needed to succeed in the increasingly competitive telecoms industry".
It will also allow traffic carried by Energis to be transferred to a new network being developed by C&W.
Privately-owned Energis, which offers products and services ranging from contact centres to data, voice and internet, employs about 1,550 people at offices in places such as London, Reading, Leeds and Dublin.
The firm's board stuck by the proposal from C&W after rejecting the counter offer for "reasons of value, uncertainty and deliverability".
Three years after completion of the deal, C&W will pay up to £80 million, dependent on the level of its share price. In addition, £126 million will be distributed to debt-holders from Energis's cash reserves.
C&W hopes to finalise the acquisition by the autumn, but warned the new addition would impact on its figures in the second half. It stands to lose around £10 million from the elimination of existing trading relationships between itself and Energis, while it expects underlying earnings in the UK to reduce by £5 million because of factors such as short-term business uncertainty.
The market gave a cool reception to the merger and a general sell-off of telecoms stocks saw C&W lead the FTSE 100 losers league, closing 6.75 down at 156.25p