Vodafone catapults into global services market with Cable & Wireless purchase

Vodafone said it will pay £1.04 billion (€1.27 billion) in cash to acquire Cable & Wireless Worldwide (C&WW) in a move that will add a UK and worldwide fibre network to its portfolio.

This move elevates Vodafone from being a mobile-only player to the UK's second-biggest telecoms operator behind BT Group, and takes it into the international fibre market with a network that reaches across Europe, India and throughout Asia, according to Dow Jones Newswires. Importantly, the deal also moves Vodafone into providing Internet, data, voice and hosting services to major private and public enterprises in the UK.

Commenting on the purchase, which should close in the third quarter, Vodafone CEO Vittorio Colao said in a statement: "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 U.K. Unusually, we were able to perform a few weeks of due diligence."

Colao added that Vodafone would invest in the C&WW network and IT platforms over the next two to three years, but declined to provide details.

Of note, 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 offer price from Vodafone does not appear to reflect the value inherent in C&WW. "Although we believe the CW&W management team has handled the bid process responsibly, we have declined to give an irrevocable undertaking or letter of intent to support the transaction," Orbis told the Financial Times.

The Bernstein analysts also raised worries in a note to investors. "Given Vodafone's history of poor acquisitions and C&WW'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," the analysts wrote in a not to investors.

But Ovum's principal analyst David Molony was more upbeat: "Vodafone's agreed merger with C&WW potentially introduces a major world telco into the global telecoms marketplace with the combination of fixed and mobile services in a global network," he said in a statement.

"In particular this is a major step up in global services for Vodafone, which will now have significant new enterprise customers worldwide, as well as the substantial international network systems and relationships C&WW has built up over many years," Molony said.

For more:
- see this Dow Jones Newswires (sub. req.)
- see this Bloomberg article
- see this Financial Times article (reg. req.)
- see this Ovum statement

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