Cable & Wireless Worldwide Plc (CW/)’s largest shareholder refused to support Vodafone Group Plc (VOD)’s 1.04 billion pounds ($1.7 billion) offer, saying the bid doesn’t reflect the value of the U.K. fixed-line network operator.
“The proposed deal is clearly attractive for Vodafone shareholders,” Orbis Holdings Ltd., which owns a 19 percent stake, said today in a statement to Bloomberg. “However, we are concerned that the offer price does not appear to reflect the value inherent in CWW.”
Vodafone, the largest wireless operator, agreed to pay 38 pence a share in cash in an offer recommended by Cable & Wireless’s board. Investors holding 18.6 percent of Cable & Wireless shares have agreed to back the deal. Vodafone, which needs support from shareholders representing 75 percent, predicts that the deal will be completed in the third quarter.
“Be careful what you wish for, it seems to be a pretty high-risk strategy,” said Evan Miller, a London-based managing director at Gamco Investors Inc. (GBL), which owns less than 1 percent of Cable & Wireless, referring to the statement from Hamilton, Bermuda-based Orbis. “I don’t see that there’s going to be another Vodafone on the scene.”
Vodafone became the sole bidder for London-based Cable & Wireless after Tata Communications Ltd. (TCOM) last week failed to agree on a price and decided against making an offer. Newbury, England-based Vodafone is pursuing a European fixed-line acquisition for the first time since 2010, when it ended talks to buy Germany’s Kabel Deutschland Holding AG. (KD8)
Cable & Wireless surged as much 17 percent to 37.45 pence in London and traded at 36.50 pence as of 2:09 p.m. The stock has gained 85 percent since Vodafone publicly expressed interest on Feb. 13. Vodafone rose as much as 1 percent.
The British mobile-phone operator is paying 2.5 times reported earnings before interest, taxes, depreciation and amortization, including debt, according to data compiled by Bloomberg. That compares with an average of 3.5 times for similar deals in western Europe in the last three years. Based on estimates for the 12 months through March 2012, Vodafone is paying a multiple of 3 times Ebitda.
Vodafone will double its revenue from enterprise customers with the purchase, while also gaining the largest U.K. fiber system for businesses. The operator needs the system to relieve the strain of surging data traffic on its own mobile-phone network as customers increasingly adopt smartphones including Apple Inc. (AAPL)’s iPhone and devices running Google Inc. (GOOG)’s Android.
“We can fill their network with our own traffic,” Vodafone Chief Executive Officer Vittorio Colao said on a conference call. “Those assets are probably finding the right long-term home for them,” he said, calling the acquisition “opportunistic.”
By gaining its own fiber network, Vodafone will avoid paying fees to access those of rivals including BT Group Plc (BT/A), to whom it pays 200 million pounds a year, according to Sanford C. Bernstein analysts. Vodafone will also gain British customers including Tesco Plc. (TSCO) Vodafone said it probably won’t be able to use Cable & Wireless’s past losses to offset its own tax obligations.
Cable & Wireless, tracing its roots to 1866 when the first submarine cable across the Atlantic Ocean was laid, has holdings in more than 60 global cable systems. Separated from its parent company in March 2010, Cable & Wireless was once worth 2.4 billion pounds. The stock has lost 65 percent of its value in the past two years before today. In November, the company suspended future dividend payments as sales fell in its traditional voice network.
Gavin Darby, a former Vodafone executive who replaced John Pluthero as Cable & Wireless’s CEO in November, said Feb. 16 that he would be prepared to consider “significant, strategic decisions” as part of plans to restructure the business. Vodafone said today it plans to reduce the new unit’s headcount.
Vodafone was advised by UBS AG, while Barclays and Rothschild are Cable & Wireless’s advisers.
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