The telecoms giant mulls a bid for FTSE 250 rival Cable & Wireless Worldwide.
Despite rising economic, political and regulatory challenges, mergers and acquisitions (M&A) bankers expect activity to pick up in 2012. This follows on from a strong 2011, when global M&A transactions totalled nearly $2.2 trillion, their highest level since 2008.
Indeed, law firm Clifford Chance predicted last month that bidding activity will be boosted by large corporations with strong balance sheets, by cash-rich private-equity companies, and by growing interest from Asia-Pacific firms.
Vodafone runs the rule over C&W
I've been patiently awaiting a flurry of bids and takeovers in the telecoms, media and technology sectors, where market leaders have solid balance sheets and plenty of cash burning holes in their pockets.
Today, telecoms giant Vodafone (LSE: VOD) got the ball rolling, confirming that it was "in the very early stages of evaluating the merits of a potential offer" for rival Cable & Wireless Worldwide (LSE: CW).
The FTSE 100 mega-cap has confirmed that any offer will be made in cash. However, in the usual M&A language, it stated that "there is no certainty that an offer will be made, nor as to the terms on which any offer might be made".
Under the tougher Takeover Code introduced last September, Vodafone now has 28 days to announce a firm intention to make an offer for C&W, or announce that it does not intend to make an offer. Either way, this deadline arrives at 5pm on 12 March.
C&W soars, but hold tight
Whether Vodafone decides to make a firm bid or pull out, the next four weeks are sure to be interesting for shareholders in Cable & Wireless Worldwide.
As I write, C&W's share price is up 28% to 25.2p, valuing the FTSE 250 firm at just short of £700 million. In comparison, Vodafone (up nearly 1% to 174p) is a Goliath, with its market cap exceeding £87 billion.
For the record, here's how the two businesses compare head to head:
|Company||Share price (p)||Market value (£bn)||PER||Dividend yield (%)||Dividend cover||Net debt (£bn)|
With over 398 million customers worldwide, Vodafone towers over C&W, so an acquisition of this size would be a mere bagatelle to the global behemoth. What's more, given the huge gap between their valuations, Vodafone can easily dig deep to win approval from the majority of its smaller rival's shareholders.
Thus, after Vodafone's due diligence, I would expect any formal bid -- if one arrives -- to be priced in the 30-40p range. In the event of a multi-party auction, this take-out price could go even higher. As it looks like this transaction may have legs, I would suggest that C&W's owners sit back, hold on to their shares, and await developments!
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