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Cable & Wireless Worldwide’s management on Monday said that a drop in annual earnings indicated why shareholders should back Vodafone’s £1.04bn takeover bid for the company, despite resistance from C&WW’s largest shareholder.
Gavin Darby, chief executive, warned that the fixed-line telecoms operator would underperform this year amid challenging trading conditions, and a restructuring plan would take time to have an effect.
“We weighed up the transformational plan and the potential upside against the risks and the time that it would take . . . We believe the Vodafone offer represents an excellent opportunity for shareholders to realise an attractive valuation in cash today,” said Mr Darby, who recently replaced John Pluthero at the company’s helm.
Shareholders will vote on the bid on June 18. Vodafone and C&WW are under pressure to get a high turnout for the vote as Orbis Holdings, which owns 19.1 per cent of C&WW, is against the bid which it believes undervalues the company. Vodafone will need more than 75 per cent of votes cast for the deal to go through.
“We would strongly recommend shareholders participate and vote,” Mr Darby said.
Orbis said it was evaluating the results and Vodafone’s scheme document, and would not comment on whether these were likely to change the hedge fund’s stance on the offer.
In advance of Monday’s results Orbis said it was already bracing for a poor performance.
“We would not be surprised for Monday’s results to show a continuation of CWW’s disappointing trends. Having said that, we do not believe that CWW’s current performance is a good indicator of the inherent value of the company.”
Revenues at Cable & Wireless fell 4.8 per cent to £2.15bn for the year to the end of March, while earnings before interest, tax, depreciation and amortisation fell 15 per cent to £378m, lower than market estimates.
The company made a pre-tax loss of £392m, compared to a pre-tax profit of £140m last time, as it wrote down more than £600m worth of goodwill, obsolete assets and tax assets. It posted a loss per share of 20.3p
C&WW has struggled in the two years since the corporate-focused UK business was demerged from Cable & Wireless’s international operations, which became Cable & Wireless Communications. The company gets about 12 per cent of its revenues from the UK public sector, where spending is being cut dramatically. Revenue from traditional voice calls is falling and the company needs to invest in its data centre business.
The company announced last year that it was withholding its final dividend, following three profits warnings.
C&WW shares were trading at about 20p before bid talks emerged, slightly more than half the level of the 38p a share offer from Vodafone. The shares closed up 1.16 per cent at 34.9p on Monday.