Vodafone Left as Sole Bidder for C&W After Tata Drops Offer Plan

By Jonathan Browning - Apr 18, 2012

Vodafone Group Plc (VOD) is left as the only potential bidder for Cable & Wireless Worldwide Plc (CW/) after Tata Communications Ltd. (TCOM) failed to agree on a price and decided against making an offer for the U.K. network operator.

Talks about a potential bid from Vodafone are continuing and the British mobile-phone operator has until 5 p.m. today to make a firm offer, Cable & Wireless said yesterday. The stock has risen 88 percent since Vodafone publicly expressed interest on Feb. 13, boosting Cable & Wireless’ value to 1 billion pounds ($1.6 billion).

“It leaves Vodafone in a pretty strong position,” said Stewart Gordon, an analyst at Berenberg Bank in London. “It’s lowered the prospect of a knockout bid but there’s clearly still some serious negotiations to be had.”

Vodafone is pursuing a European fixed-line acquisition for the first time since 2010, when it ended talks with Kabel Deutschland Holding AG (KD8), Germany’s largest cable-operator. The Newbury, England-based company may use Cable & Wireless’s fiber network to boost its fixed-line system in the U.K. and relieve the strain of surging data traffic. A Vodafone spokesman declined to comment yesterday.

“This is the benefit of Vodafone having waited up to the end of the deadline to see what Tata does, with them left as the sole public bidder,” said Nick Brown, an analyst at Espirito Santo Investment Bank. “It’s paid off for them to wait if that’s their intention.”
Pressure on Shares

Tata Communications had won deadline extensions, alongside Vodafone, for a potential bid and had secured $2 billion to help finance an offer. The company “has been unable to reach agreement with C&W on an offer price and therefore confirms that it does not intend to make an offer,” it said in a separate statement yesterday.

Brown predicted Cable & Wireless shares will drop in London trading today, unless Vodafone decide to announce a bid beforehand. Yesterday, Cable & Wireless shares gained 2.6 percent to 37.05 pence.

In the last two years, Cable Wireless lost 60 percent of its market value. 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 was declining as contracts were renegotiated.
Data Push

The U.K. is Vodafone’s only major European market in which it lacks a fixed-line network. The operator, which said in February that data revenue climbed 13 percent in the U.K. in the last quarter of 2011 as more customers bought smartphones, is seeking to shift traffic onto fixed lines to reduce the burden on its wireless network.

For Tata Communications, there was little headroom within its funding, Gordon said. “It always struck me that a bid of about 40 pence was going to be a push.”

Purchasing Cable & Wireless would have complemented Tata Communications’ operations in emerging markets including South Africa (SBK), the Middle East and Asia. Tata Group, which controls the telecommunications company, has acquired companies in the U.K. including Jaguar Land Rover Plc and Corus Group Plc.

To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.