James Moore: Why knackered CWW is worth £1bn to Vodafone
Outlook: CWW's assets immediately turn Vodafone into the biggest fixed line provider after BT
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
Tuesday 19 June 2012
Orbis, the investment group, bowed to the inevitable yesterday and called off its threat to conduct a guerilla war against Vodafone's bid for Cable & Wireless Worldwide.
Having built up a near 20 per cent stake in the group – which made it the biggest shareholder – the investor could have proved a considerable irritant to Vodafone.
It certainly huffed and puffed a bit, even threatening to hang on as a minority shareholder in an unlisted CWW after the completion of the deal. Which was just a little bit silly because Vodafone is structuring the transaction as a scheme of arrangement which doesn't allow refuseniks to stick around.
It does require the backing of 75 per cent of shareholders to succeed, so Orbis wouldn't have needed much support to cause a problem.
And its central point – that the £1.04bn bid undervalues CWW – has a lot of merit. CWW as an independent entity might have been one step out of the knackers' yard but its assets could prove extraordinarily valuable to Voders.
They immediately turn it into the biggest fixed-line telecoms provider after BT and mean that the company will at some point be able to package these fixed-line services alongside its mobiles to corporate clients, who might like such an arrangement.
What's more, that fixed-line capacity is becoming a hot commodity. Mobile companies already use fixed lines to transfer calls from the caller's mast to the recipient's. They're going to need an awful lot more fixed-line capacity to transfer the sort of data people are increasingly using their phones to download.
Because it is cheaper to have your own cables than it is to lease other people's, Vodafone could easily make back the purchase price – which represents just eight weeks' free cashflow – within a matter of weeks.
The more one looks at this transaction, the more it looks as if Vodafone has come away with a huge bargain even without CWW's tax write-offs, which the company insists it won't be able to use. That's what tweaked Orbis's interest, and it merrily vacuumed up as many shares as it could get its hands on at prices rather bigger than the 38p a share it's now going to get.
Trouble is, its fellow shareholders were delighted to get out at any price. Such is CWW's disastrous history that the prospect of the deal not going ahead induced a collective migraine in the lot of them.
The Bermudan fund manger appears not to have seen this coming. Its people were, perhaps, too busy poring over spreadsheets in their air-conditioned offices to pick up on the sentiment.
Majestic's success is an indictment of high street
How on earth did a retailer that sells one of life's little luxuries produce a Majestic set of results against the worst economic backdrop for a generation? The wine merchant that bears that name managed to increase sales from stores open at least a year by 2.6 per cent, profits by 14.5 per cent and customer numbers by 11 per cent.
What's more the average price per bottle sold went up to £7.34 from £6.94, with the average spend per transaction (Majestic makes people buy at least six bottles) ticked up by £2 to £128.
Wasn't it the middle classes who were supposed to be getting squeezed the most? Perhaps they're just drowning their sorrows.
Perhaps they just like dealing with a retailer whose staff seem to have a genuine love for the product and usually do their damnedest to find customers something they might like if given a few vague details and a budget.
Majestic's success at a time when people are feeling the pinch is actually something of an indictment of the rest of the high street because it demonstrates how retailers have forgotten a business truism: give your customer a bit of love and they'll happily hand you a lot of money.
Majestic should have a care, though. The wine trade is littered with the names of rivals about whom oenophiles enthused only to see them falling by the wayside.
It is expanding rapidly and it would be oh so easy for the business to lose its touch. There's nothing like hiring a few MBAs or former investment bankers with time on their hands to run things (or just to "strengthen the board" as non-executive directors) for things to start sliding.
These people have a habit of asking awkward questions. Like, why are we spending so much getting our shop staff drunk (sorry, acquainted with our product)? Or, why don't we get them to push Chateaux Malheur? I know it's a bit more ordinary than Bonny Doon's Bloody Good Red but the margins are stellar.
Answering those sorts of questions wrongly will turn a majestic business into a moribund one just as quickly as an unwanted takeover by a multinational drinks group with more money than sense (see Oddbins for details).
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