Vodafone may put struggling Cable & Wireless Worldwide (CWW) out of its misery after the mobile giant admitted yesterday it was weighing up a bid for the corporate telecoms supplier.
The revelation of possible takeover interest sent shares in CWW soaring 44 per cent. Under the Takeover Code, Vodafone, which is keen to expand its services for multi-national companies, has until 12 March to make a firm offer or walk away.
It said: "Vodafone regularly reviews opportunities in the sector and confirms that it is in the very early stages of evaluating the merits of a potential offer for CWW."
Investment bankers were rubbing their hands at fresh signs of life returning to the takeover market, after deals for Xstrata, software firm Misys and Robert Wiseman Dairies since the start of the year. The disclosure also means that Gavin Darby, CWW's new boss, could rip up the new strategy he was expected to outline alongside trading figures this Thursday.
The former Vodafone man only took over the reins in November after his predecessor, John Pluthero, admitted the game was up as the company plunged to a £590m half-year loss.
CWW shares rose 8.79p to 28.54p, but are still two-thirds lower than they were a year ago. The company has been ailing since its international arm was demerged two years ago. A string of profits warnings saw the dividend axed.
Despite landing a £10m bonus for supposedly leading a turnaround, the City failed to buy Mr Pluthero's vision of creating a cloud-computing company that would host information for business clients at its data centres. Instead, investors focused on CWW's weak cashflows and competition in providing phone calls and internet access.
Vodafone could benefit from marrying CWW's fixed-line data services for customers including Aviva and Tesco to its own corporate mobile arm, as well as providing extra capacity for its network. The union could even help Vittorio Colao, the company's chief executive, regain Vodafone's mobile crown in Britain, where it lags behind Orange's owner Everything Everywhere and Telefonica, the parent of O2.
Tim Daniels, an analyst at Olivetree Securities, said a deal could make sense for Vodafone because it had no fixed-line network in Britain in contrast to many other markets where it had integrated fixed and wireless networks.
"Pressure on data networks from smartphones and tablets means that mobile companies can't cope with all the traffic and have to move some of the overspill on to fixed-line networks," he said.
Some analysts disagreed over whether Vodafone could take advantage of CWW's tax losses. However, others were wary over whether Vodafone needed to acquire CWW at all.
"Whilst it is possible to argue that there is some logic to bidding for these assets, which could be margin accretive, we think that it is by no means certain, nor necessary, for the UK business to do so," wrote Robin Bienenstock, a senior analyst at Bernstein Research.
After Mr Colao tidied up Vodafone's asset base by selling stakes in France, Poland, China and Japan, the company has a strong balance sheet. Extracting a first dividend in more than six years from its US joint venture Verizon Wireless led to a £2bn special payout recently.