After more than two months of consideration and a challenge from Tata Communications (news, filings), Vodafone Group (NYSE:VOD, news, filings) said this morning that it has reached an agreement to buy cw. They had received a three day extension on Friday, which seemed to indicate the tying up of loose ends on a bid. The purchase will give Vodafone a substantial enterprise-focused fiber footprint in the UK that will help them scale their mobile backhaul infrastructure.
It will also significantly boost their global IP infrastructure and multinational customer base global mobile assets, and comes with fiber assets like the Apollo transatlantic cable and a piece of the new EPEG terrestrial route between Europe and the Middle East. C&W has struggled in recent years to take full advantage of its global infrastructure, and the synergies Vodafone should be able to derive could be substantial if they are successful in the integration.
The deal will be all cash amounting to £1.044B, or $1.7B, which Vodafone will fund from its existing resources. That corresponds to 38 pence per share, a 92% premium above where C&W’s stock was trading when this all started more than two months ago and up just under 20% from Friday’s close. The stock had fallen on the news that Tata had withdrawn from the auction, but should have been going the other way.
Vodafone does also reserve the right to increase the offer if a third party bid materializes. But given the public nature of this auction, if such an event were in the works it seems likely we would have heard something by now. Tata appears to have had difficulty raising the funds on reasonable terms, and of course Vodafone’s deep pockets gave it an advantage. Other potential bidders, such as Level 3, are currently busy elsewhere and may have better targets later anyway.
Vodafone expects the deal to be accretive to the company’s earnings per share and free cash flow in the first 12 months of ownership after synergies and before integration costs. The projected synergies have not been revealed yet. For reference, here is C&W’s global and footprint:
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Categories: Internet Backbones · Mergers and Acquisitions
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With net debt of GBP100M (Sept 30) and FY12 (March 31) EBITDA estimated at GBP370M, it looks as if the valuation was (1044+100)/370 or 3.1x 2012 EBITDA, give or take.