Vodafone considering CWW purchase

Vodafone has confirmed that it is in talks to buy struggling telco Cable&Wireless Worldwide (CWW).

CWW shares rose by almost 30% in response to the confirmation, with the deal expected to be worth more than £700 million. Any offer made will be in cash according to a statement on Vodafone’s website.

Interest from Vodafone is likely to come as a relief to CWW investors who have seen the company struggle following its 2010 demerger, resulting in the business-focussed CWW and consumer-focussed Cable & Wireless Communications.

In November of last year, the company replaced its CEO John Pluthero after just six months following a series of poor financial results. During his tenure, CWW’s overall market value fell by almost a quarter, with a pre-tax loss of £433 million. His replacement, the former Vodafone CEO, Gavin Darby, could prove to be a defining factor in Vodafone’s next move.

CWW is facing an ongoing challenge to implement services in order to keep in touch with competitors. The main obstacle the operator faces is whether it can shift away from its rapidly declining voice business and compete with larger players like BT, in offering affordable telephony services to UK organisations.

As part of this shift the company entered into a collaboration agreement with data centre operator, Equinix, last month to deliver cloud-based services to global enterprises. It also recently announced that it was expanding its data hosting capacity by 25% through a 15-year agreement with data centre operator, Infinity.

Asian carrier Pacnet was reported to have made an informal bid of $500 million for CWW’s overseas business in June 2011. The bid was thought to undervalue CWW’s international assets and was rejected.

Private equity firm, Apax Partner, is also said to be interested in CWW and if it were to complete a takeover, would apparently consider splitting up the telco and selling its individual parts, which are claimed to be worth more than the company as a whole.

Vodafone Group stressed that there was no certainty that an offer would be made, but said there would be a further announcement in due course if appropriate. In accordance with the takeover code, Vodafone is required to make its intentions known by March 12 2012.

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