The acquisition of Cable & Wireless Worldwide (CWW) would solve a number of outstanding issues for Vodafone, says a Morningstar analyst.
According to an analyst note from Morningstar's Allan Nichols, there are at least three key reasons why the deal makes good sense to Vodafone. Firstly, the mobile operator already has fixed-line infrastructure in a number of European countries but none in the U.K.; secondly, the operator wants to build up its enterprise business--an area where CWW is strong; and thirdly, owning CWW would enable Vodafone to switch backhaul traffic onto this network, and thereby reduce what it currently pays to BT for these services.
Prior to Vodafone's interest in CWW, the stock market valued the company at a lowly £530 million. However, its shares have soared by nearly 40 per cent since Vodafone admitted it was considering a bid, boosting CWW's value to around £740 million.
The new CEO of CWW, ex-Vodafone exec Gavin Darby, gave his first assessment of the company saying that the business had been "focused on the wrong measure".
Making no mention of Vodafone's interest, Darby was reported by the Financial Times as saying that CWW would now be run in a "fundamentally different" way, and promised to present a medium-term "strategic agenda" in May.
Darby also highlighted that CWW, which has struggled to make headway for some years, would likely need greater short-term opex to achieve its goal of improved cash flow. He also detailed the costly and complex structures that any potential bidder would need to cope with in a business where voice and data growth has stalled.
Vodafone's potential bid for Cable & Wireless fails to excite analysts
Vodafone plans sweeping cost cuts amid European debt crisis
Vodafone Germany to charge premium for LTE smartphone access
Vodafone Germany inks fibre backhaul deal for LTE deployment
Vodafone Germany favors LTE over fixed-line broadband