UK mobile operator Vodafone has announced plans to acquire fibre operator Cable & Wireless Worldwide (CWW) in a £1.04bn (US$1.67bn) recommended cash offer.
Under the proposed deal, which was unanimously recommended by CWW’s board, the target’s…
UK mobile operator Vodafone has announced plans to acquire fibre operator Cable & Wireless Worldwide (CWW) in a £1.04bn (US$1.67bn) recommended cash offer.
Under the proposed deal, which was unanimously recommended by CWW’s board, the target’s shareholders will receive 38p per share in cash. This represents a 92% premium to the stock’s 19.8p closing price on 10 February, which was the last day of trading before the commencement of the offer period.
“The acquisition of Cable & Wireless Worldwide creates a leading integrated player in the enterprise segment of the UK communications market and brings attractive cost savings to our UK and international operations,” explained Vodafone CEO Vittorio Colao.
Vodafone had until noon today to declare a bid for CWW, after the UK Takeover Panel extended the deadline for a third time last Thursday, following a decision by the target’s only other suitor to pull out of the running.
Indian telco Tata Communications, which is being advised by Standard Chartered, said it decided to pull out of the race because it had been unable to reach an agreement with CWW on price. Reports suggest Tata had been offering around 35p per share.
Under takeover rules, Tata could re-enter the race now that a firm offer has been placed by Vodafone. However, analysts have highlighted how Vodafone would be able to justify a higher premium for the group than Tata, which was reported to have been close to securing a US$2bn loan to help support the transaction.
CWW provides voice, data and IP-based services to companies and governments around the world. But since its creation from the demerger of Cable & Wireless in 2009, CWW has been weighed down by a series of profit warnings. These have been caused by a general decline in government spending and a weak economic environment. There have also been reports of managerial disputes. Current CEO Gavin Darby, notably a former Vodafone executive, is CWW’s third CEO since June 2011.
In fact, Vodafone had faced speculation that it was looking to use CWW’s historic losses to obtain a tax credit worth around US$5bn.
But, in explaining the rationale behind its planned acquisition, the company said: “CWW’s tax losses and capital allowances are not key to the rationale underpinning the offer. Vodafone does not believe it can utilise CWW’s tax losses and it has not ascribed any value to the possibility of using CWW’s capital allowances against Vodafone Group’s existing UK operations.”
Rumours about undersea cables disposal
Meanwhile, Vodafone rejected reports claiming that after the transaction, the company could sell off CWW’s undersea cables to raise as much as £500m (US$805m), with potential bidders including US telcos AT&T and Verizon.
Marcus Allchurch, a telecoms M&A specialist at BDO LLP, said: “What you see when you overlay CWW’s international network onto a map of Vodafone’s worldwide network (including Verizon Wireless and Partner markets) is that there really is a lot of cross-over.
“CWW’s levels of IP traffic and its peering status should provide significant cost synergies, and it is capable of handling part of Vodafone’s international traffic which points to improved margins. On that basis, we may see Vodafone deciding to wait and see how effectively it can get the businesses to fit together before making any decisions to sell off chunks. “
A spokesman for Vodafone, however, strongly dismissed the reported rumours that it could be looking to sell its undersea cables.
Vodafone first announced intentions to acquire CWW on 13 February, following reports that it was looking to submit a £700m (US$1.09bn) cash offer. Reports citing undisclosed CWW shareholders suggest they were unwilling to settle for an offer of less than £1bn.
Commenting on Vodafone’s takeover offer, CWW chairman John Barton said: “Under the leadership of Gavin Darby, Cable & Wireless Worldwide has outlined a strategy to refocus the business on achieving sustainable cash generation and returns from capital invested. However, the offer from Vodafone announced today will enable 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.
“Furthermore, the combination with Vodafone represents an exciting opportunity for Cable & Wireless Worldwide’s customers, employees, partners and other stakeholders to benefit from the many advantages that will come from being part of the Vodafone Group.”
CWW shareholder support
Vodafone also announced that it has already received the support of 18.6% of CWW’s shareholders for its planned acquisition.
According to the mobile operator, it has irrevocable undertakings from around 10.35% of shareholders, including RBC Global Asset Management, Sky Investment Counsel and Cyrte Investments, to vote in favour of the offer. In addition, it has received letters of intent to vote in favour of the transaction from 8.13% of CWW shareholders, including JP Morgan Asset Management and Investec Asset Management.
But Orbis, CWW’s largest shareholder with a stake of around 20%, has criticised Vodafone’s offer, saying it does not reflect the true value of the company. However, it is understood that Orbis has not yet officially rejected the bid.
Vodafone is being financially advised by UBS. CWW has mandated Barclays Capital and Rothschild to advise it on the deal.
CWW posted £2.26bn (US$3.6bn) in revenue for the full-year to the end of March 2011, down from £2.27bn for the corresponding period in 2010. FY 2011 EBITDA improved to £442m (US$712m), from £431m US$694m) in 2010.
At the time of going to press, CWW’s shares were trading at around 36p, up from the 32p they closed at on Friday 20 April.
