Weak CWW results may rally support for Vodafone bid

A customer walks past the Vodafone logo in a shopping mall in Prague February 7, 2012.

LONDON (Reuters) - Cable & Wireless Worldwide could use its expected poor set of results on Monday to justify its support for a takeover by Vodafone, a deal that its largest shareholder has said is too cheap.

The troubled business telecoms group, which was valued at 2.7 billion pounds just two years ago after the former Cable & Wireless split, agreed to be bought by Vodafone for 1 billion pounds last month.

Some 18.6 percent of shareholders have pledged to take the money rather than wait for a turnaround after suffering a string of disappointments in the last two years.

Analysts predict CWW's full-year pretax profit will halve to 72.3 million pounds from 143 million a year ago, according to a Thomson Reuters I/B/E/S/ poll of six brokers.

However, Orbis, a long-term investor holding 19 percent, has said that Vodafone is picking up CWW's extensive fibre network, business contracts and international cables at a bargain price.

It said the bid did not reflect CWW's true value, although it has not ruled out accepting it. A spokesman said the fund manager was still considering its position.

CWW has bought forward its full-year results to noon on Monday to coincide with Vodafone posting its scheme of arrangement document.

It will use the poor results to "put pressure on shareholders to accept", said a source close to the deal.

A CWW spokesman said: "There will be slightly more detail around the board's reasons to approve the offer."

He said the numbers had been bought forward - by two days - to give shareholders all the information at once.

If Vodafone fails to get acceptances from owners of 75 percent of CWW stock as required under the scheme of arrangement, it can switch to a tender offer, although this would be a less tax-efficient method.

HIGHER BID

Espirito Santo analyst Will Draper said a nucleus of investors could rally around Orbis to try to force a higher bid.

"If Orbis doesn't accept, Vodafone could go ahead at 38 pence a share and would accept Orbis as a minority and hope that one day they could squeeze them out," he said.

Another scenario would be that Vodafone raised its bid slightly to get Orbis to tender, he said.

"Either outcome is CWW is bought, and the minimum you will get is 38 pence - there's a very slim chance of more if Orbis agrees to sell out for more and Vodafone raises its bid accordingly," he said.

Orbis has said it would be prepared to remain a minority shareholder in a Vodafone-controlled CWW.

It is no stranger to the strategy. It refused Canon's recommended 8.6 euro-a-share offer for printer maker Oce in 2010, before selling out for 9.75 euros in late 2011.

However, there may be no prospect of a dividend payout from CWW, making the value of staying on as a minority shareholder dubious. It also runs the risk of Vodafone walking away.

Orbis has said it knew very well the risk that Vodafone "may withdraw its offer and CWW's price may fall in the short term".

The shares touched 13 pence last year, and analysts have said they could fall to a similar level if the offer failed.

Analyst Tom Gidley-Kitchin at Charles Stanley said there was quite a good case for saying that Vodafone could switch to a tender offer.

"Vodafone will park CWW for a year or maybe two, so it doesn't need to own 100 percent," he said.

"They could keep it at arm's length, and if they then bid 45 pence or 50 pence for the minority, Vodafone's total cost is only 40 pence (a share)."

Shareholders also do not know the extent of the task of turning CWW around. Its chief executive Gavin Darby, a former Vodafone man, has not fully detailed his plans, although he has said the business is underinvested.

Espirito Santo's Draper said: "CWW's own management has recommended (the bid) on the basis that you might have a very long wait to get to 38 pence on a organic basis, and that's a new management that theoretically should be as bullish and upbeat as possible."

Vodafone for its part has said areas of the business "needed investment", but it has not given further details. It has also said the deal will be earnings accretive, pre-integration costs, "pretty much immediately".

(Editing by Jon Loades-Carter)