Vodafone yesterday launched a £1bn bid for Cable & Wireless Worldwide, only to have the target's leading shareholder reject it within hours.
Vodafone chief executive, Vittorio Colao, hailed the long-anticipated CWW takeover, saying it would mean his company becomes the second-biggest telecoms firmin Britain.
"We will move from No 4 position to No 2," declared Mr Colao, pointing out how it will leapfrog Everything Everywhere and Telefonica's O2 to be second only to BT in terms of UK sales. The combined Vodafone-CWW business will have British revenues of almost £7bn a year.
CWW's board has unanimously backed the 38p-a-share cash offer, but Orbis, which holds 19 per cent of CWW, claimed: "The offer price does not appear to reflect the value inherent in CWW."
Mr Colao now faces a battle to persuade CWW shareholders. So far, 18.6 per cent have backed the takeover but Vodafone needs the support of three-quarters of investors.
CWW shares jumped 12 per cent to 35.9p yesterday on news of the deal,but that is still below the offerprice, reflecting uncertainty inthe City.
The shares had plunged as much as 20 per cent last week after India's Tata Communications pulled its rival bid last week. Tata could yet make a fresh offer for CWW.
Vodafone is paying a 92 per cent premium to CWW's share price before the talks. However, CWW's value has fallen more than 60 per cent since 2010 after its split from the mobile operation Cable & Wireless Communications.
Mr Colao said CWW will complement Vodafone's own mobile network as customers look for "unified communications services" from one telecoms provider.
Vodafone dismissed speculation that buying CWW, which has run up huge losses, could have tax benefits. "Vodafone does not believe it can utilise CWW's tax losses," said the mobile giant.