Acquiring C&W Worldwide Would Give Vodafone Many Advantages and a Few Big Risks

G. Barton
G. Barton

Summary Bullets:

  • C&W Worldwide fits with Vodafone’s UC ambitions and would significantly boost Vodafone’s UK global capabilities.
  • On the downside, C&W Worldwide is a challenging organisation for Vodafone to integrate.

The news that Vodafone has become the first of Cable&Wireless Worldwide’s (CWW) alleged suitors to formally announce that it is considering making a bid for the carrier has been greeted with surprise in certain quarters, but it shouldn’t really be seen as unexpected. Vodafone frequently been cited as a likely candidate to acquire CWW and this speculation increased in late 2011 when former Vodafone exec Gavin Darby became CWW’s CEO. It certainly shouldn’t be a surprise when you consider that for the full year 2010/11 the two companies would have had combined worldwide revenues of GBP 48.14 billion and combined UK revenues of GBP 6.97 billion.

A successful bid from Vodafone for CWW would offer Vodafone and end users a number of potential benefits.  Vodafone would immediately become BT’s biggest UK based rival in the enterprise market with UK network presence to rival competitors such as Virgin and Easynet as well and attractive global fixed and mobile network assets and headcount.  Vodafone’s recent acquisition of Bluefish was driven by its own desire to expand its UC capabilities, particularly in terms of professional services, and CWW would give Vodafone an even greater boost. Vodafone and CWW have synergies in other areas such as smart metering/networking – an area of interest both to utilities companies and to end users who are trying to reduce energy costs. CWW would also provide Vodafone with a number of central government and regional public sector contracts (e.g., the Foreign Office). Vodafone’s proven track record in the public sector should reassure CWW customers if a takeover happens, and CWW’s experience with the NHS will help Vodafone to develop its mHelath proposition. Vodafone’s previous experience integrating the former German fixed operator Arcor should help lessen the impact of any takeover.

There are a number of concerns for Vodafone and also for existing CWW customers associated with any potential Vodafone bid for CWW. Vodafone is primarily consumer focussed putting it at odds with CWW’s purely enterprise focus. CWW is significantly larger than previous acquisitions and integrating CWW whilst keeping its customers happy is no small challenge. These are also fixed networking contracts of a type that Vodafone is not used to managing. Even in Germany, Vodafone’s fixed operations are primarily as a national carrier focusing on the mid-market; CWW is a global fixed carrier focussing on major MNC, wholesale carrier and advanced public sector contracts. CWW also has a number of skeletons in the closet – not least a GBP 590 million loss for H1 2011/12 on the back of falling revenues and a pension fund shortfall. However, despite all its recent travails, CWW has won big contracts such as Artel and Bravura in the last six months. Integration with Vodafone would offer an opportunity to iron out the operational issues that have affected CWW and in the longer term provide cost savings that would be passed on to customers. Vodafone is also a highly reputable and powerful brand name and one that customers should feel confident about.

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