Vodafone has confirmed that it is looking at purchasing troubled fixed line operator Cable and Wireless Worldwide.
The company has until 5pm today to make its intentions known to the stock market as per trading rules, but confirmed this morning in a statement that it ‘is in the early stages of evaluating the merits of a potential offer for CWW."
The Sunday Times is reporting that the offer is for £700m, all cash. CWW’s share price shot up by around 30% (at the time of print).
The deal would make sense for Vodafone, which needs to boost its network coverage and backhaul for the increased amount of mobile traffic being generated by smartphones and tablets. The company is also preparing for the next generation of mobile networks, 4G LTE – which has been delayed in the UK to 2013-2015.
CWW has struggled in recent years, more so since the break up of Cable and Wireless Group in 2010. Executive remuneration issues, shareholder revolts and a collapsing share price have shattered the company’s share price. The company has blamed decreased government contract work for its continued missing of performance targets, due to the Conservatives cutting spending across the board.
It produced a half year loss of £433m, which saw CEO John Pluthero walk out after just six months. The company has now had three CEOs in a year, £3.3m man Gavin Darby is currently in charge.
David Molony, principal analyst at Ovum believes that Darby’s appointment, as a former Vodafone executive, was key.
"A merger would give Vodafone significant global network for fixed services to complement or even integrate with its mobile operations worldwide, and give it a significant position in global enterprise services. Second, it fits with an Asia-Pacific growth strategy for Vodafone – CWW has the highest penetration of the business fixed services market in Asia-Pacific of the European and US-owned telecoms service providers.
"However, becoming a fully-integrated telco will make life complicated for Vodafone too. It has some major contracts with global MNCs 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," he said.