Cable and Wireless plc and Digital Island Inc. announced today that the companies have entered into a definitive merger agreement which provides that Cable & Wireless will offer to acquire all of the outstanding shares of Digital Island 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.

Digital Island is a leading provider of managed Internet services for business customers. It supplies integrated managed hosting, content delivery and intelligent network services to bypass Internet congestion and guarantee fast and relevant interaction. Digital Island targets businesses serving a global customer base and focuses primarily on the finance, media, entertainment and high tech industry markets. It has been successful in building a high quality customer base, including E*TRADE, UBS Warburg, FT.com, SONY, Cisco and Microsoft. Revenues from large corporate customers account for some 70% of Digital Island's total revenues, with the balance coming from small and medium enterprises (SMEs). As reported in Digital Island's second quarter earnings release, revenues for the year ending 30 September 2001 are expected to be in the range of US$140 million to US$145 million. Digital Island has approximately 850 employees.

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.

Graham Wallace, Chief Executive, Cable & Wireless, said: "The proposed acquisition of Digital Island accelerates the implementation of Cable & Wireless' global IP and data strategy in the key area of value added services. 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."

"By combining the innovations of Digital Island with the world class IP network and financial backing of Cable & Wireless, Digital Island gains renewed momentum, giving our customers and potential customers confidence that we will continue to innovate and improve the profitability of their online operations," said Ruann Ernst, Chairman and CEO of Digital Island.