Vodafone closes in on $1.6 billion CWW network deal

LONDON Mon Jun 18, 2012 12:40pm EDT

A customer walks past the Vodafone logo in a shopping mall in Prague February 7, 2012. REUTERS/David W Cerny

A customer walks past the Vodafone logo in a shopping mall in Prague February 7, 2012.

Credit: Reuters/David W Cerny

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LONDON (Reuters) - Vodafone's capacity to offer fast-growing smartphone data services was boosted when the biggest investor in 1.04 billion pound ($1.6 billion) bid target Cable & Wireless Worldwide fell in line with the deal at the last minute.

A CWW vote had been on a knife edge until institutional investor Orbis decided to support the 38 pence per share offer on Monday after the British fixed-line network operator said 59 percent of shareholders backed the deal.

Vodafone, the world's biggest mobile company and set to become Britain's second-largest telecoms operator behind BT, has said CWW will strengthen its integrated corporate services business, in Britain and internationally.

CWW's 20,500 kilometers of optical fiber will also help take the strain of Vodafone having to satisfy the needs of smartphone users for data services without having to rent fixed-line capacity, as it does now, from the likes of BT.

Bermuda-based fund manager Orbis, which holds 19 percent of CWW stock, had said Vodafone's offer undervalued the company.

It said on Monday it had taken a pragmatic decision that Vodafone would likely adjourn the meeting to obtain the necessary support of 75 percent of shareholders, even without Orbis's backing. "This is not in the interests of any CWW stakeholder," it said.

In the event, the holders of 78.7 percent of CWW's shares voted, with 99.1 percent, including Orbis, backing the offer.

The vote sealed the fate of CWW, a company that traces its history back to the 19th century, serves many British blue-chip companies and government departments and which has cables spanning the globe.

CWW shares closed up 7.8 percent at 37.77 pence, while Vodafone rose 0.7 percent to 174.9 pence.

Analyst Nick Brown at Espirito Santo Investment Bank said: "Vodafone has taken advantage of CWW's shares trading at quite a depressed multiple at the time they came in with their bid. We believe that the value to Vodafone is around 50 pence if not north of that, depending on what they do with the company".

VODAFONE STRATEGY

Vodafone swooped on CWW after investors lost faith following the group's split from Caribbean-focused Cable & Wireless Communications in March 2010.

CWW has had a tumultuous period since the demerger, issuing a string of profit warnings as it was wrongfooted by government cuts, increased competition and a faster than expected decline in voice traffic.

Its management has been held at least in part responsible by investors and analysts.

John Pluthero, the former Cable & Wireless executive who took more than 10 million pounds bonuses from the group, was installed as chief executive a year ago, but was, in turn, ousted when the company suspended dividends and issued 624 million pounds of writedowns in November.

CWW shares, which hit a high of 98.5 pence after the split, valuing the group at $4.25 billion, fell to 13 pence, increasing speculation it would be prey to a takeover offer.

Former Vodafone executive Gavin Darby took over as CEO with a brief to put the group on a firmer footing and improve its weak cash generation.

The board said the turnaround plan would need additional investment and need to be implemented in challenging trading conditions, leading it to conclude that cash from Vodafone was a better prospect.

Vodafone's interest sparked Tata Communications to also take a look at the business. The Indian group withdrew after failing to reach agreement with CWW's board on an offer price, leaving Vodafone as sole bidder.

(Editing by Dan Lalor and Greg Mahlich)

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