Vodafone in Cable & Wireless buyout

Vodafone is set to become the UK’s second biggest telecoms operator after it agreed to buy ailing Cable & Wireless Worldwide for £1.04 billion.

Vodafone, which will be second to BT once the deal is completed, offered 38p a share for CWW, a 92% premium to the closing price on the day before the talks were unveiled.

The move comes after Indian rival Tata Communications walked away from discussions last week, leaving FTSE 100-listed Vodafone as the sole runner.

CWW provides high-speed telecoms services to the police and companies including Tesco and will be attractive to Vodafone as the mobile phone firm looks to grow its corporate arm at a time of slow consumer growth.

Vodafone said a reduction in headcount and office locations in places where the two firms overlap was likely but specific numbers are yet to be determined.

Vodafone Group chief executive Vittorio Colao said: “The acquisition of Cable & Wireless Worldwide creates a leading integrated player in the enterprise segment of the UK communications market and brings attractive cost savings to our UK and international operations.”

Vodafone said CWW’s UK fibre network - which runs some 12,738 miles (20,500km) - fits well with the location of Vodafone Group’s UK base stations and will provide fast data traffic at a lower cost to the wider market as demand for mobile data continues to grow.

Vodafone is understood to be planning to hive off CWW’s 260,000 miles (418,430km) of undersea cables, with potential buyers including American groups AT&T and Verizon. This reportedly has the potential to fetch about £500 million.

Vodafone said CWW’s historic tax losses and capital allowances - claims that help lower taxes - were not “key to the rationale” underpinning the offer.

It added that it did not believe it can use CWW’s tax losses and it has not pinned any value to the possibility of using CWW’s capital allowances against Vodafone Group’s existing UK operations.

CWW chairman John Barton said the deal will “enable shareholders to crystallise a value, in cash, that represents a significant premium to recent trading levels and avoid exposure to the risks inevitably presented by executing a medium-term improvement strategy”.

The interest in Cable was spurred by the collapse in its share price since it split from Cable & Wireless’s Caribbean-based telecoms arm in 2010.

The company has been affected by the squeeze on Government spending and the weak economy, leading it to report heavy losses for the six months to September 30 and warn of no dividend payments to bolster its balance sheet.

Jonathan Jackson, head of equities at Killik & Co, said: “Vodafone is paying a reasonable price for a business that will strengthen its enterprise business in the UK and internationally, and presents attractive network and other cost-saving opportunities.”

Andy Kerr, Communication Workers Union deputy general secretary, said: “We hope that Vodafone don’t intend to asset-strip further at the expense of our members - their staff. However, in our experience, whenever there’s a takeover there are job losses and staff in CWW in particular will be feeling concerned right now.

“We would hope that, because of the different nature of the work that the two companies undertake - mobile versus fixed line - that there wouldn’t be too large a reduction in the workforce.

“We’ll be working to minimise the impact of any redundancies on staff and to seek alternatives to compulsory redundancies, in particular, wherever possible.”