Vodafone's potential bid for Cable & Wireless fails to excite analysts

Vodafone's interest in making a bid for Cable & Wireless Worldwide (CWW) is being given a lukewarm reception by market analysts.

While Vodafone has admitted preliminary talks with the struggling fixed-line network provider, initial reaction has been that any decision to acquire CWW is little more than an option for the company.

Guy Peddy, an analyst with the financial services firm MacQuarie, told Reuters that the operational questions that needed fixing in CWW made a bid a possibility rather than a likelihood. "The due diligence that Vodafone would have to conduct would need to make them comfortable there is an underlying sustainable business," he said. "It's not necessarily an easy sell to its [Vodafone's] investors."

Ovum's principal analyst, David Molony, argued that becoming a fully-integrated telco would make life complicated for Vodafone. "It [Vodafone] has some major contracts with global multinational companies that get their fixed services from other telcos like BT. Those customers who want more collaboration on fixed-mobile services will wonder where Vodafone's ownership of CWW leaves them."

Vodafone itself provided a guarded comment, saying in a statement carried by Dow Jones Newswire "it was in the very early stages of evaluating the merits of a potential offer," and cautioned that there is no certainty an offer will be made. Any offer would likely be in cash, it said.

The deal is being valued by most observers at around £700 million, but in a note to clients, the brokerage firm Sanford C. Bernstein believes an eventual acquisition price could value CWW between £700 million to £900 million. Analysts at Bernstein added that the deal could make sense for Vodafone, but it wasn't crucial for the company to push ahead if in doubt.

On a more positive note, Olivetree Securities analyst Tim Daniels said a move by Vodafone could make sense because it had no fixed-line network in the U.K. in contrast to many other markets where it had integrated fixed and wireless networks. "Pressure on data networks from smartphones and tablets means that mobile companies can't cope with all the traffic and have to move some of the overspill onto fixed-line networks," he told Reuters.

While other major European telcos have been mentioned as possible bidders for CWW, market watchers have largely discounted them from bidding. However, the private equity firm Apax Partners reportedly registered an interested in making an approach for CWW, and analysts have also suggested that the telecoms group would be worth more if it were broken up and sold off piece by piece.

For more:
- see this Reuters article
- see this Dow Jones Newswires article
- see this Financial Times article
- see this Bloomberg article

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