Shares of the troubled telecom, Cable and Wireless Worldwide jumped up 30% after Vodafone announced they were in the early stages of negotiations to buy the company for 700 pounds. Vodafone said the talks were in an early stage as they consider the risks and rewards of buying the company. C&WW investors welcome the deal as the company and its stock have faced many short falls and difficult periods ever since the demerger with Cable & Wireless Communications.
Since the demerger, C&WW has had three troubling quarters, halved its dividend and cut funding to pensions. The company blames its poor performance on the tough economy and competition. The company’s leadership has been inconsistent as it has gone through two chief executives over the last couple of years. The two ex-chiefs were rewarded huge million pound bonuses in the process, a move that was widely criticized by large investors.
Vodafone hasn’t been the only interested candidate to pick up C&WW. Apax Partners, a private equity firm, has been expressing interest in buying the company, saying that C&WW may be worth more if it was broken up and distributed.
C&WW serves corporate and public sector telecom needs however, it severely lacks the ability to compete with rivals AT&T, BT, Telefonica and Vodafone. The deal, if Vodafone was to buy C&WW, would boost its market share and put it in a more dominant position against the other companies in the industry.
Vodafone reported a miss in its European third-quarter earnings report, last week. Management blames the miss on the rough economic environment in countries such as Italy, Spain and Greece. However, analysts remain bullish on the company and the stock saying that they expect cash flow to come in at 8.8 billion pounds in the fiscal year ending on March 31st.
Vodafone needs a little extra boost to keep its earnings up and beating expectations. I believe the C&WW deal could push them to that point as they would take on more market share and a more dominate position in the industry. However, it could take some time before it gets to that point. C&WW is a mess and it will take Vodafone a few quarters to clean out the costly waste and get C&WW into a more efficient machine that could produce results for the company. That is why I support the deal but not expecting instant results.
