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Cable & Wireless Worldwide agrees to Vodafone offer

Vodafone Group PLC Monday agreed to buy ailing telecommunications operator Cable & Wireless Worldwide PLC for GBP1.04 billion, elevating itself from a mobile-only player to the U.K.'s second-biggest telecommunications operator behind BT Group PLC.

The acquisition gives Vodafone its own fixed-wire network in the U.K., boosts its global business-to-business operations and offers attractive cost savings, Vodafone Chief Executive Vittorio Colao said.

C&W Worldwide specializes in offering Internet, data, voice and hosting services to large private and public enterprises and it owns the U.K's biggest fiber network dedicated to businesses. It also has an international cable network that reaches across Europe, India and throughout Asia. But the company's fortunes dwindled after its spinoff from parent Cable & Wireless PLC in 2010, and it issued three profit warnings and suffered several senior management changes and a sliding stock price.

Vodafone plans to use C&W Worldwide's U.K. fiber network to meet rising demand from business customers for combined fixed and mobile communications. It will also inherit an international cable network that reaches across Europe, India and throughout Asia, which the CEO said he plans to retain.

Colao said Vodafone would invest in C&W Worldwide's network and information technology platforms over the next two to three years, without providing figures.

Vodafone's 38 pence-a-share cash offer is a 92% premium on C&W Worldwide's closing share price of 19.8 pence on Feb. 10 before news of the bidding interest broke. India's Tata Communications Ltd. had said it was thinking of bidding but withdrew from the race last week after failing to agree on a price.

C&W Worldwide Chairman John Barton stressed the company's turnaround strategy was on track, but he said Vodafone's offer would allow shareholders to "crystallise a value, in cash, that represents a significant premium to recent trading levels and avoid exposure to the risks inevitably presented by executing a medium-term improvement strategy."

The acquisition will see Vodafone annual domestic revenue in the U.K. rise by a third to GBP6.97 billion. Before the purchase, Vodafone, the world's biggest mobile operator by revenue, was the fourth largest telecommunications player in the U.K. with annual domestic revenue of GBP5.27 billion. It leases fixed-line network access from former U.K. monopoly BT.

The purchase nudges it ahead of Everything Everywhere Ltd.'s GBP6.78 billion annual revenue and Telefonica SA's O2's GBP5.77 billion, according to Vodafone, but it still significantly lags BT Group's annual domestic revenue of GBP15.58 billion.

The acquisition will be paid for in cash and will start contributing to earnings within the first 12 months, Vodafone said, though this excludes integration costs.

Analysts called the deal advantageous though brokerage Sanford C. Bernstein retained a note of skepticism.

"Given Vodafone's history of poor acquisitions and CWW's history of under-investment, Vodafone will have to do much to reassure investors that it has done thorough due diligence, notwithstanding the small scale of the acquisition and the low price they have paid," Sanford C. Bernstein said in a note to investors. They have an outperform rating on Vodafone and 215 pence target price.

The long-awaited deal pushed C&W Worldwide to the top of the FTSE 250 index leader board at 1213, trading 14% higher, or 4 pence, at 36 pence and valuing the company at GBP998 million. Vodafone shares were up 1 pence, or 0.4%, at 172 pence, valuing the operator at GBP85.22 billion.

Vodafone said Monday it has support for the deal from just under 19% of C&W Worldwide's shareholders, including RBC Global Asset Management Inc., Sky Investment Counsel Inc. and Cyrte Investments GP I B.V.

C&W Worldwide's biggest shareholder, hedge fund company Orbis Investment Management Ltd., however, criticized the offer, saying it "does not appear to reflect the value inherent" in C&W Worldwide, and said it is reviewing its options. Orbis holds 19% of C&W Worldwide.

The deal is subject to European regulatory approval, but CEO Colao doesn't expect any issues to arise. It is expected to be completed in the third quarter of 2012.

Источник: Total Telecom

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