Vodafone to spend £500M fixing CWW, but promises bigger payback

Vodafone said the cost to integrate and improve Cable & Wireless Worldwide (CWW) will amount to £500 million over the next four years, but promised the eventual payback will be larger than some analysts forecast.

Vodafone, which acquired CWW for £1.31 billion in July, said that combining networks and customers will involve necessary costs, but the business should deliver cash flow synergies of £150 million to £200 million per year by March 2016, creating an operating free cash flow contribution for the group in that year of £250 million to £300 million, according to Reuters.

CWW CEO Nick Jeffery, who headed Vodafone's global enterprise division until July, told Reuters that CWW's revenues would continue the downward trend of the last three years until 2014. He admitted that Vodafone's first task is to stabilise CWW--which he said has long suffered from under-investment in its networks and customer service--with approximately 60 per cent of the integration costs being invested in the first 18 months.

"It just takes a long time for this ship to turn around, and it's that we see taking 18 months to two years," he said.

The promise of the CWW acquisition generating extra business for Vodafone was the main rationale for the deal and is proving better than expected, according to Vodafone CTO Steve Pusey.

"We are seeing many customers from both companies knocking on our door for a converged fixed-mobile-hosted application offer," he told Reuters.

The purchase of CWW has doubled the size of Vodafone's enterprise business, according to Bloomberg, making it the second-largest telecoms provider in the UK by revenue, after BT.

But analysts at investment bank Espirito Santo remained unconvinced by the turnaround prospects for CWW, claiming that the cash flow target was ahead of their estimates, as was the synergy range of £150 million to £200 million—which they believe is closer to £160 million.

"The disappointment will be the length of time that it takes for Vodafone to achieve these cash flow benefits--March 2016 is more than three and-a-half years after the deal completed," they wrote, according to Reuters.

For more:
- see this Reuters article
- see this Bloomberg article

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