Analyst: Vodafone's Cable & Wireless purchase could bring slim savings

Vodafone's £1.04 billion (€1.27 billion) cash bid to acquire Cable & Wireless Worldwide (C&WW) may not deliver as much cost savings as some observers previously thought, according to one analyst firm.

According to research from Enders Analysis, efficiency savings are possible by combining the resources of the two firms, but are likely to be small. The firm claims that the deal, which is unlikely to be sealed until the autumn, provides Vodafone with the ability to cost-effectively expand its fixed enterprise business in the UK. If successful, the company could then move to replicate this elsewhere across its operations, although Enders believes any change will be gradual.

Commenting on the offer, which was made Monday, Vodafone CEO Vittorio Colao said: "The acquisition of C&WW creates a leading integrated player in the enterprise segment of the U.K. communications market and brings attractive cost savings to our U.K. and international operations."

"While opportunistic in nature, this acquisition is in line with group strategy," Colao told investors Monday in a conference call, according to Bloomberg. "This was an attractive opportunity to buy assets in the UK. Unusually, we were able to perform a few weeks of due diligence."

Regarding potential cost savings, Bloomberg also reported that Sanford C. Bernstein analysts believe Vodafone will now avoid paying £200 million a year to use BT's fibre network in the UK, given it now has its own. The analysts also said that Vodafone will gain valuable access to customers such as Tesco and the NHS. Vodafone has said it will probably not be able to use C&WWs' past losses to offset its own tax obligations.

However, a major shareholder with 19 per cent of C&WW, the fund manager Orbis, has cautioned that the 38 pence-per-share offer price from Vodafone does not appear to reflect the value inherent in C&WW.

However, Marcus Allchurch, a telecoms M&A specialist at BDO, told the Wall Street Journal: "For Cable & Wireless Worldwide shareholders, this offer represents a significant premium and there's a risk that Vodafone will walk away. The alternative could be going back to the drawing board, which could be pretty painful."

For more:
- see this Enders Analysis article (sub. req.)
- see this Bloomberg article
- see this WSJ article (sub. req.)
- see this Financial Times article (sub. req.)

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