In July 2012, Vodafone completed a previously announced takeover of venerable British telecom service provider Cable & Wireless Worldwide (CWW). The $1.6 billion deal was contested by some investors, who said that Vodafone was getting assets — primarily a 12,000 mile optical fiber network — worth much more. In the end, investors took the cash rather than endure another half-hearted restructuring with uncertain results, or reject an offer that would almost certainly lead to further drops in the price of its shares.
It wasn’t the price per share that CWW investors objected to, exactly, because the offer price was nearly double what CWW shares were trading in February of this year, before Vodafone expressed interest in the company. More probably it is the drop in the company’s share price since it was split off from its Cable and Wireless International unit (now called Cable & Wireless Communications) in 2010. It is also investor anger at the overall decline of the once formidable Cable & Wireless group, which traces its roots to a consortium that laid the first submarine cable between England and France.
CWW has struggled mightily in recent years, suffering through a series of product missteps, a scandal involving a lavish executive compensation scheme, and a series of profit warnings after government austerity measures took a toll on its public sector business. After Cable & Wireless was split into two publicly traded companies in 2010, its share price went from a high of 98.5 pence right after the split to 13 pence in November 2011.
CWW certainly has operations that Vodafone could use to satisfy its own global growth ambitions. The company has the aforementioned fiber optic network, which will allow Vodafone to reduce the amount of landline it rents from competing telecom firms, primarily BT. CWW also has a global network for fixed services that complement Vodafone’s worldwide mobile operations. CWW has a larger share of the enterprise fixed-line services market in Asia than any of the other European or US-owned telecom service providers, which fits in with Vodafone’s growth strategy in the Asia/Pacific market. Finally, CWW has expanded its managed data and network services, hosting, and IP-based services and applications for the enterprise and government customer segments.
While CWW has a lot to offer, whether Vodafone will be able to get the business back on track remains to be seen. It may have taken a step in the right direction when it replaced the company’s management team with a stable of Vodafone executives tasked with leading the integration effort. Can Vodafone get past its mobile communications mindset to find profits that have proven elusive for Cable & Wireless Worldwide?