Vodafone (VOD) agreed to acquire Cable & Wireless Worldwide (CW. ) this week for 38p per share, in cash, valuing the company at roughly GBP 1 billion. C&WW management and its largest shareholders have agreed to support the deal, though we at Morningstar believe the company is selling itself short. We believe the fair value for C&WW is closer to 45p per share. However, with Tata Communications dropping out of potential bidding on Friday, we do not expect any other offers.
We think Vodafone is getting a great deal. C&WW has been horribly run for years, but it has some nice assets that will fit very well with Vodafone. It owns the second-largest enterprise backbone in the United Kingdom after BT Group (BT.A), the incumbent telecom operator. The UK was the only major Western European country where Vodafone didn't own its own fixed-line network. Increasingly, corporations have been buying bundles of fixed-line and wireless services, which Vodafone can now offer without reselling BT capacity. The firm will also be able to move much of its UK wireless backhaul business to its own lines, cutting the amount it pays to BT. C&WW owns stakes in 69 undersea cables, which Vodafone can use to move its own international calls or potentially sell to reduce the cost of the acquisition.
While we think Vodafone received a great deal, it is too small to move our fair value estimate for Vodafone as the total cost is just GBP 1.044 billion. We think this purchase was a one-off opportunity where Vodafone saw a chance to pick up a nice asset at a great price. But this is not a sign that the company is going on another buying binge.
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