Vodafone Has A Clear Shot At C&W Worldwide

Published in Investing on 19 April 2012

Tata pulls out of the bidding for the FTSE 250 firm, sending Cable's shares crashing 20%.

An Anglo-Indian corporate tug of war came to an end at 5pm last night, when Indian conglomerate Tata announced that it was withdrawing from the bidding race for Cable & Wireless Worldwide (LSE: CW).

Vodafone versus Tata

This saga began more than two months ago, on 13 February, when Vodafone (LSE: VOD) responded to press speculation by admitting that it was "in the very early stages of evaluating the merits of a potential [cash] offer for CWW". This announcement gave the UK's biggest telecoms company until 12 March to walk away or make a firm offer.

However, on 1 March, Tata Communications entered the fray as it confirmed that it was "evaluating a possible cash offer for CWW". This announcement gave the Indian firm until 29 March to 'put up or shut up' in City lingo.

On 9 March, the Panel on Takeovers and Mergers agreed to extend Vodafone's deadline to 29 March, matching Tata's deadline. On 29 March, this deadline was extended for both bidders to 5pm on 19 April, so any formal bid must come within the next few hours.

Vodafone or nothing

Yesterday at 5pm, Tata released a short announcement confirming that "it has been unable to reach agreement with CWW on an offer price and therefore confirms that it does not intend to make an offer for CWW". Tata's withdrawal leaves Vodafone as the only bidder, so the telecoms giant now has a clear shot at picking up Cable & Wireless Worldwide.

Given that Vodafone is now the only bidder, and is therefore firmly in the driving seat, investors fear that it could make a low-ball offer aimed at acquiring CWW on the cheap. Hence, when the London market opened this morning, CWW shares plunged from yesterday's close of 37p to below 28p.

As I write, shares in the FTSE 250 firm trade at 29.25p, down more than a fifth (21%). This values the group at under £800 million -- a mere minnow when compared with Vodafone, a Leviathan worth £85 billion.

Bad news for CWW's owners

Vodafone's directors have been guilty of over-paying for targets in the past, notably at the height of the dotcom bubble in February 2000, when they made a £112 billion all-share bid for German rival Mannesmann.

However, these are very different days, so I suspect that Vodafone's board will not present CWW shareholders with a knockout takeover bid -- if Vodafone even bids at all, that is. It looks like CWW's owners have a nervous wait today as the clock ticks away until 5pm.

When Vodafone first admitted its interest in CWW, I suggested that any formal bid would come in the 30p-40p price range. I'm sticking with that belief, as I suspect that a bid around 35p would be enough to win over CWW's largest, long-suffering shareholders.

Regardless of what happens today, CWW shareholders must be kicking themselves for hanging onto their shares following its demerger from Cable & Wireless Communications (LSE: CWC) in March 2010. Whatever Vodafone may offer today, it will be a mere fraction of the post-demerger high approaching £1, when CWW was worth nearly £2.5 billion!

Sign up for a 30-day free trial to Motley Fool Share Advisor and get immediate access to all of our share recommendations and in-depth analysis.

More from Cliff D'Arcy:

Share & subscribe

Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

Tykethat 19 Apr 2012 , 11:44am

"Regardless of what happens today, CWW shareholders must be kicking themselves for hanging onto their shares following its demerger from Cable & Wireless Communications (LSE: CWC) in March 2010. Whatever Vodafone may offer today, it will be a mere fraction of the post-demerger high approaching £1, when CWW was worth nearly £2.5 billion!"

Thanks for reminding me Cliff! Not one of my better decisions !

Kind regards

Mark

goodlifer 19 Apr 2012 , 12:21pm

Thank the Lord I got out - probably for all the wrong reasons!

AleisterCrowley 19 Apr 2012 , 12:46pm

Perhaps Virgin will buy them?!

absolver 19 Apr 2012 , 3:11pm

and the other half of the original Cable & Wireless is even worse

CunningCliff 19 Apr 2012 , 4:30pm

It's 4.28pm and still no news from Vodafone with 32 just minutes to go until the deadline. A last-minute announcement seems likely, then...

Cliff

CunningCliff 19 Apr 2012 , 4:46pm

Deadline extended to noon on 23 April, see:
http://www.investegate.co.uk/Article.aspx?id=201204191635007088B

It looks like VOD isn't going to back out, then...

Cliff

andrew97d 20 Apr 2012 , 3:30pm

I sold out at 70p + 50p (CWW + CWC) and bought ISAT at £7.05, bugger.

anthonyms 22 Apr 2012 , 5:26am

A 5bn tax credit from CW could help mitigate the 10bn tax bill that India is threatening VOD with. This acquisition would have added much more value to Tata than VOD though and it's a shame they backed out it would have increased India's participation in the global economy and potentially added some sanity to their approach to business governance through shared interest in stable and favourable business climate for MNCs.
a

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.