Vodafone considers offer for Cable & Wireless Worldwide

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Vodafone has confirmed that it is considering a cash offer for Cable & Wireless Worldwide, with the offer believed to be worth up to £700m.

The offer for Britain’s second largest fixed line telecoms network comes as Vodafone seeks to bolster its network to cope with the explosion of internet traffic on mobile phones.

In a response to press speculation over the weekend Vodafone issued a statement which said, “Vodafone notes the recent press speculation regarding Cable & Wireless Worldwide plc (“CWW”).

Vodafone regularly reviews opportunities in the sector and confirms that it is in the very early stages of evaluating the merits of a potential offer for CWW. There is no certainty that an offer will be made nor as to the terms on which any offer might be made. Any offer, if made, will be in cash but Vodafone reserves the right to change the specie of consideration. A further announcement will be made in due course, if appropriate.”

The Guardian reported that shares in CWW surged 31% to 25p in early trading, reflecting the premium that Vodafone is thought to be considering. The company was worth £526m on Friday after a series of profit warnings slashed the share price by 70% over the last 12 months.

Vodafone’s shares nudged up 0.9% to 174p. With the growing popularity of smartphones and tablets, the volume of internet traffic over mobile phones has surged, forcing Vodafone and other mobile operators to rent miles of backhaul – the cables that connect mast networks to the internet – from BT Group and CWW.

The volume of data traffic on the UK’s mobile networks increased 40-fold between 2007 and 2010, according to the telecoms watchdog Ofcom, and the mast builder Ericsson forecasts it to grow 10-fold around the world by 2016.

Vodafone already owns miles of cables in other European countries including Germany, where it continues to expand its fixed line network.

However, the move into acquisition mode marks a shift in strategy by the Vodafone chief executive, Vittorio Colao, who has spent his three and a half years at the head of one of the world’s largest mobile operators slimming it down by selling minority stakes in overseas operators.

Vodafone has until 5pm on 12 March to make a firm offer or withdraw. Other groups that could take an interest in CWW’s assets include the private equity firm Apax Partners, which is investing in telecoms and recently bought the Orange network in Switzerland.

Virgin Media could be attracted to CWW’s corporate client base, having vowed to grow its business services division at a faster rate than the rest of the company over the coming years.

Were CWW to be broken up for auction, it could be worth more than the price being considered by Vodafone.

Investec Bank recently put the break-up value of CWW at £2.5bn, saying its UK network and customer base could be worth £1bn, its data centres £350m, its network of global subsea cables £650m and a further £500m for accumulated losses which can be used to reduce tax bills.

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