Taking over Cable & Wireless will be a milestone for Vodafone in its quest to expand its presence in the fixed line and enterprise markets.
After several weeks of negotiation, Vodafone announced its intention to acquire Cable & Wireless Worldwide (CWW) on Monday April 23rd. The agreed deal values CWW at just over £1 billion – the offer of 38 pence per share represents a premium of over 90% compared to February levels. The benefits for Vodafone are clear: the operator would obtain a comprehensive fixed network in UK and beyond, key to its objectives of becoming a ‘total telecommunications’ player and ramping up its enterprise business. “With the mobile communications becoming increasingly saturated – especially in developed markets – such diversification is essential for Vodafone as it seeks new growth opportunities,” says Adrian Drozd, Frost & Sullivan Principal Analyst for ICT Europe.
In the UK, CWW’s fibre network is present in 400 towns and cities, and covers around 55% of the population. Some estimates indicate that deploying such a network from scratch would cost around £5bn, suggesting that the £1bn Vodafone intends to pay for CWW may be very shrewd business. Furthermore, Vodafone has asserted that the network has good alignment with its mobile base station network – meaning that it can be used for backhaul, removing the need for Vodafone to pay rival operators for access to the necessary fixed network assets. But it’s just not about the network. CWW also provides telecoms services to approximately 70% of FTSE 100 companies, allowing Vodafone to double the size of its UK corporate/government business overnight.
“From a global perspective, the deal is particularly significant for Vodafone Global Enterprise (VGE). Adding CWW’s network presence (127 points of presence across 35 countries) and service offerings (integrated communication and data hosting) will allow VGE to compete on a more even footing with some of the leading fixed-line players such as Orange and Telefonica,” adds Adrian Drozd. “Although Vodafone’s mobile coverage and capabilities have allowed the company to develop a leading role in the managed communication arena, the addition on CWW’s fixed coverage and capabilities will doubtless open up new opportunities with clients seeking to fulfil their total telecoms and unified communications needs from a single provider. Furthermore, by leveraging CWW’s established network presence, Vodafone will be able reduce its reliance on third-party network providers, potentially delivering significant cost benefit.”
The deal remains subject to shareholder approval, which could still provide a major obstacle. CWW’s main shareholder – investment firm, Orbis, which hold around a 19% stake – has so far declined to accept the proposed deal, stating that the valuation is too low considering the assets that Vodafone will obtain and the value it will receive as a result. “Although Vodafone was believed to have secured the backing of the CWW’s next five largest shareholders at the time of writing (accounting for a combined 18.6% stake), work is still needed to ensure that the deal is supported by the necessary 75%.
If the deal goes go through, it will be a major milestone for Vodafone in its quest to expand its presence in the fixed line and enterprise markets. All of a sudden, the operator’s aspirations of significantly boosting income from VGE – which currently generates around £1 billion per year – seem very achievable,” summarises Adrian Drozd.