Tata pulls out of the bidding for the FTSE 250 firm, sending Cable's shares crashing 20%.
An Anglo-Indian corporate tug of war came to an end at 5pm last night, when Indian conglomerate Tata announced that it was withdrawing from the bidding race for Cable & Wireless Worldwide (LSE: CW).
Vodafone versus Tata
This saga began more than two months ago, on 13 February, when Vodafone (LSE: VOD) responded to press speculation by admitting that it was "in the very early stages of evaluating the merits of a potential [cash] offer for CWW". This announcement gave the UK's biggest telecoms company until 12 March to walk away or make a firm offer.
However, on 1 March, Tata Communications entered the fray as it confirmed that it was "evaluating a possible cash offer for CWW". This announcement gave the Indian firm until 29 March to 'put up or shut up' in City lingo.
On 9 March, the Panel on Takeovers and Mergers agreed to extend Vodafone's deadline to 29 March, matching Tata's deadline. On 29 March, this deadline was extended for both bidders to 5pm on 19 April, so any formal bid must come within the next few hours.
Vodafone or nothing
Yesterday at 5pm, Tata released a short announcement confirming that "it has been unable to reach agreement with CWW on an offer price and therefore confirms that it does not intend to make an offer for CWW". Tata's withdrawal leaves Vodafone as the only bidder, so the telecoms giant now has a clear shot at picking up Cable & Wireless Worldwide.
Given that Vodafone is now the only bidder, and is therefore firmly in the driving seat, investors fear that it could make a low-ball offer aimed at acquiring CWW on the cheap. Hence, when the London market opened this morning, CWW shares plunged from yesterday's close of 37p to below 28p.
As I write, shares in the FTSE 250 firm trade at 29.25p, down more than a fifth (21%). This values the group at under £800 million -- a mere minnow when compared with Vodafone, a Leviathan worth £85 billion.
Bad news for CWW's owners
Vodafone's directors have been guilty of over-paying for targets in the past, notably at the height of the dotcom bubble in February 2000, when they made a £112 billion all-share bid for German rival Mannesmann.
However, these are very different days, so I suspect that Vodafone's board will not present CWW shareholders with a knockout takeover bid -- if Vodafone even bids at all, that is. It looks like CWW's owners have a nervous wait today as the clock ticks away until 5pm.
When Vodafone first admitted its interest in CWW, I suggested that any formal bid would come in the 30p-40p price range. I'm sticking with that belief, as I suspect that a bid around 35p would be enough to win over CWW's largest, long-suffering shareholders.
Regardless of what happens today, CWW shareholders must be kicking themselves for hanging onto their shares following its demerger from Cable & Wireless Communications (LSE: CWC) in March 2010. Whatever Vodafone may offer today, it will be a mere fraction of the post-demerger high approaching £1, when CWW was worth nearly £2.5 billion!
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