FTSE 100 telecoms giant Vodafone (LON:VOD) this week swooped on Cable & Wireless Worldwide (LON:CW.) in a £1.04 billion deal that now seems likely to bring a modestly priced end to a particularly miserable couple of years for the flagging communications group and its shareholders. For Vodafone – currently among the best dividend payers in London – the deal offers some interesting new avenues in the all-important Enterprise market. 

What’s the story? 

Vodafone’s offer of 38p in cash for every CWW share was never at risk of appearing generous although the price represents a near 100 percent premium on where CWW was trading in mid-February when sketchy details of a deal first emerged. No surprise then that the board have recommended it – bringing to a premature end Gavin Darby’s four month tenure as chief executive (CWW’s third CEO in a year) and coming just two years after the demerger of Cable & Wireless Worldwide and Cable & Wireless Communications. For shareholders of CWW, the deal crystallises a generally poor performance over that time, which saw the stock price tumble from 92p to 14p. 

For Vodafone, the acquisition brings with it CWW’s fibre network, which offers numerous cost saving advantages, along with the more significant opportunity to boost its exposure to corporate markets at home and abroad. Two years ago, chief executive Vittorio Colao set out a new growth strategy that included a focus on the Enterprise segment, where there is apparently strong demand for unified communications services. This deal will help Vodafone provide just that. 

What’s the bull case? 

In market conditions where dividends hunters are having a field day, Vodafone’s 5.2 percent current yield (and a forecast yield of 8.3 percent) is among the very best. Its figures were flattered last year from the opening of the dividend taps at its 45 percent owned US business Verizon Wireless, which arrived mid-way through a three year commitment by Colao to produce 7 percent dividend growth annually. The good news is that Verizon Wireless’s first quarter figures released this week were positive and well-received by the market. All eyes on Vodafone’s May prelims, then. 

Dividends apart, Vodafone is rated a ‘buy’ among the majority of analysts – some of which periodically speculate about the possibility of Vodafone and Verizon Wireless merging. Either way, it is…

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