(Reuters) – Mobile phone group Vodafone (VOD.L) has agreed to buy Cable & Wireless
Worldwide (CWW) for 1.04 billion pounds ($1.7 billion), giving it a British fixed-line network to relieve the strain on its
wireless operations from data-hungry smartphone users.
The world’s biggest mobile phone operator by revenue said on Monday buying corporate telecoms
specialist CWW CW.L would make it a leading player in both fixed-line and mobile telecom services to Britain’s businesses,
and it could make cost savings by using CWW’s networks, both in the UK and internationally.
“There is a good overlap
between Cable & Wireless’ fiber network and our base stations which will significantly reduce the cost to us of managing
the growth in data traffic,” Vodafone Chief Executive Vittorio Colao said in a call with analysts.
He said the deal
would make Vodafone the second largest telecoms supplier in the UK after BT (BT.L), and would double the size of its enterprise
business in Britain, which serves companies.
“This positions us very well to capture the growth demand for unified
data services in enterprise,” he said, referring to companies’ demand for both fixed-line and mobile
services.
Vodafone is offering CWW shareholders, who have had a torrid time since the group split from the former
Cable & Wireless in March 2010, 38 pence a share in cash, a 92 percent premium to the price before it declared its
interest in February.
CWW has issued three profit warnings, had the same number of chief executives and has suspended
its dividend since it split.
Vodafone can use CWW’s 20,500 kilometers of fiber cables to shift data from its wireless
network, which is under strain as more and more people use data-hungry smartphones. The mobile giant currently rents fixed
lines for such capacity – a process called backhaul – from the likes of CWW and BT.
The deal also boosts Vodafone’s
enterprise business with the addition of contracts to provide voice, data and hosting services to British government
departments and companies, and it gains CWW’s international cable network.
India’s Tata Communications (TATA.NS) was also in talks to buy CWW, but withdrew
last week when the two sides could not agree on a price. It was said to have indicated it could offer 35 pence a
share.
Shares in CWW were 14.2 percent higher at 36.5 pence by 0937 GMT, reflecting shareholders’ relief that a bid
had materialized after Vodafone was granted three extensions by Britain’s takeover panel. Vodafone’s shares were broadly
flat.
“It’s positive for Cable & Wireless because there was still some skepticism in the market whether Vodafone
would bid at all, particularly after Tata stated it was unlikely to bid,” said Espirito Santo analyst Nick Brown.
He
said Tata could re-enter the race, but thought it was unlikely to at this price level. “They would be unable to compete if
Vodafone did enter a bidding war,” he said.
UNIFIED STRATEGY
Robin Bienenstock at Bernstein said Vodafone was
increasingly focused on fixed lines because it needed backhaul capacity as next generation wireless technology rolled out and
it targeted business with companies.
“The UK is a good place to test this strategy as so much UK wireline business is
concentrated in the hands of BT and given that Vodafone has a strong business brand here,” she said.
Vodafone’s
offer, which CWW said was “fair and reasonable”, is backed by shareholders holding 18.6 percent of CWW’s
stock.
Analysts had said Vodafone could use some of CWW’s losses to offset some of its tax bill, but Vodafone said it
did not believe it could utilize the tax losses.
CWW’s history stretches back to the middle of the nineteenth
century, when it laid a telegraph cable between London and Dublin. Links between Britain and India, the Caribbean, Asia, Australia and the United States
followed.
The group ran into trouble, however, within months of its demerger from Cable & Wireless Communications
(CWC.L) in 2010, a deal engineered by former chief
executive John Pluthero, who pocketed more than 10 million pounds in bonuses from the business.
Pluthero returned as
chief executive of CWW in June 2011 but left within six months after the group posted a 433 million pounds half-year
loss.
CWW’s shares have plunged from a high of 98.5 pence when it listed to a low of 13 pence in November 2011, as it
blamed a faster-than-expected drop in voice revenue, intense competition in data services and government cutbacks for its
woes.
UBS is acting as sole financial adviser to Vodafone. Barclays and Rothschild are acting as joint financial
advisers to CWW.
($1 = 0.6205 British pounds)
(editing by Mark Potter)