Vodafone Group Plc (VOD) said the integration of its Cable & Wireless Worldwide acquisition will incur about 500 million pounds ($809 million) in costs by March 2016 as it combines networks and customers.
The deal, whose final purchase price came to 1.3 billion pounds including a convertible bond, will increase annual cash flow by 150 million to 200 million pounds by 2016 when the two companies predict they will be completely integrated, Vodafone said in a statement today. Operating free cash flow from Cable & Wireless (CWC) will hit 250 million to 300 million pounds that year.
Vodafone, the world’s second-largest wireless operator, agreed to buy the fixed-line company to offload traffic and add business customers. The acquisition will double the size of Vodafone’s enterprise business and make it the second-largest phone company in the U.K. by revenue, after BT Group Plc (BT/A), the company said today in a conference call with analysts.
“We see Cable & Wireless as a good opportunity to strengthen our existing enterprise business,” said Nick Jeffery, the former head of Vodafone’s enterprise unit who now runs Cable & Wireless. “If you believe the future of enterprise communications is convergence, you really need strength in mobile, strength in fixed and strength in hosted, or cloud assets.”
When it was announced in April, the deal valued Cable & Wireless at 2.5 times reported earnings before interest, taxes, depreciation and amortization, including debt, according to data compiled by Bloomberg. That compared with an average price of 3.5 times Ebitda for similar, western European deals in the last three years. Vodafone completed the deal in July.
Vodafone will use those assets to fortify its wireless network in the U.K., connecting Cable & Wireless fiber to its towers and allowing it to cut backhaul services with providers such as BT, the company said today.
Ultimately, the high-capacity fiber network will provide space for Vodafone to offload streaming video and other bandwidth-heavy services from its mobile network with enough capacity to spare to lease to other carriers, the company said.
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.
Cable & Wireless has suffered from under-investment and Vodafone plans to put more money into customer service immediately, Jeffery said today. Revenue declines will probably continue for the next two years as Cable & Wireless feels pressure from declining fixed-line phone subscriptions and a weak pipeline of new services, Vodafone said.
(The company hosted a conference call to discuss the deal at 9 a.m. London time. To access replay, go to http://www.vodafone.com/content/index/investors.)
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