March 1 (Bloomberg) -- Tata Communications Ltd. said it may make a cash offer for Cable & Wireless Worldwide Plc, setting up a potential rivalry with Vodafone Group Plc to win control of the owner of Britain’s largest U.K. business fiber network.
Talks are “at a very preliminary stage” and Tata Communications must decide whether it will make an offer by March 29, the Mumbai-based company said today. Vodafone, which said last month it was evaluating a bid, has until March 12 to announce whether it will make a formal offer for London-based Cable & Wireless. Simon Gordon, a Vodafone spokesman, declined to comment today.
Cable & Wireless jumped as much as 27 percent in London. The company, which has replaced two chief executive officers since June, has assets ranging from a U.K. core fiber network to an overseas enterprise unit. After losing 70 percent of its market value in less than two years, Cable & Wireless’s equity and net debt as a multiple of earnings before interest, taxes, depreciation and amortization is the lowest of any telecommunications carrier in the world greater than $1 billion, according to data compiled by Bloomberg.
“Two bidders always make for a bit of demand tension,” said Paul Marsch, a London-based analyst at Berenberg Bank. “I would imagine that it focuses even more Vodafone’s scrutiny on what exactly is this business worth to us.”
Purchasing Cable & Wireless would complement Tata Communications’s operations in emerging markets including South Africa, the Middle East and Asia, a person familiar with the matter said today. Tata Group, which controls the telecommunications company, has acquired companies in the U.K. including Jaguar Land Rover and Corus Group Plc.
While earnings are slumping at Cable & Wireless, Newbury, England-based Vodafone, the world’s largest mobile-phone operator, needs to boost its fixed-line system in the U.K. to relieve the strain of surging data traffic.
In November, Cable & Wireless suspended future dividend payments as sales fell in its traditional voice network and it announced that John Pluthero was stepping down as CEO after less than six months at the helm. The operator said Feb. 16 that profitability in its voice business has declined as contracts are renegotiated.
The shares rose 5.12 pence, or 18 percent, to 33 pence as of 9:20 a.m. in London, giving the company a market value of 906 million pounds ($1.4 billion).
Cable & Wireless may also lure bids from private equity firms, analysts at Espirito Santo Investment Bank said last month.
Tata Communications has hired Standard Chartered Plc to advise it on the potential purchase of Cable & Wireless, a person with knowledge of the matter said earlier. Cable & Wireless is advised by NM Rothschild & Sons Ltd. and Barclays Capital.
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