Vodafone Group Plc (VOD) agreed to acquire Cable & Wireless Worldwide Plc (CW/) for 1.04 billion pounds ($1.7 billion) in cash, adding a U.K. fixed-line network to its mobile-phone system and gaining business customers.
The world’s largest wireless operator will pay 38 pence a share in an offer recommended by Cable & Wireless directors, the companies said today. The stock surged 16 percent to 37.24 pence as of 9:54 a.m. in London, for a gain of 88 percent since Vodafone publicly expressed interest Feb. 13.
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)
“While opportunistic in nature, this acquisition is in line with group strategy,” Vodafone Chief Executive Officer Vittorio Colao told investors on a conference call today. “This was an attractive opportunity to buy assets in the U.K. Unusually, we were able to perform a few weeks of due diligence.”
Vodafone 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 price of 3.5 times Ebitda 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.
Global Cable Systems
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. It also owns the largest U.K. fiber system for businesses, which Vodafone may use to relieve the strain of surging data traffic on its own mobile- phone network.
Vodafone rose 0.2 percent to 171.75 pence as of 10:03 a.m. The stock is down 3.9 percent this year on the London exchange.
Vodafone said Cable & Wireless investors representing 18.6 percent of the shares have already agreed to the purchase. The largest shareholder, Orbis Holdings Ltd., hasn’t yet made a commitment.
Tim Ashton, an analyst with Orbis in London, told Colao on the investor call that the bid was “very opportunistic.”
Vodafone predicts that the deal will be completed in the third quarter, Colao said.
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. Vodafone said today it probably won’t be able to use Cable & Wireless’ past losses to offset its own tax obligations.
Vodafone was advised by UBS AG, while Barclays and Rothschild advised Cable & Wireless.
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. 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 will cut headcount at the company.