C&WW would be Tata's third-largest UK acquisition

The potential acquisition of British telecom giant Cable & Wireless Worldwide Plc (C&WW) by Tata Communications would be Tata Group's third-largest in the UK. (See: Tata Communications to bid for British telecom firm C&W Worldwide) 

If the deal goes through, the acquisition would also make Tata's the second-largest private sector employer in Britain after Tesco.

C&WW, which has seen a change of three CEO's since the past 12 months, saw its market value jump by 40 per cent after Vodafone's short stockmarket announcement on 13 February of being in very early stages of evaluating the merits of a potential cash offer, giving it a market value of around $1.2 billion.

Tata Communications is vying for the undervalued London-listed company, which had issued three profit warnings in 12 months, and seen its market value drop by over 70 per cent since last year, as it announced writedowns of £624 million in November 2011.

If the Tata Communications-C&WW deal goes through, it would be Tata Group's seventh major acquisition in the UK after it acquired Corus - Europe's second-largest steel maker, the iconic Jaguar Land Rover, Tetley Tea, Bruno Mond, now named Tata Chemicals Europe, and two luxury hotels, 51 Buckingham Gate and Crown Plaza St James. 
With annual revenues of $2.6 billion, Tata Communications has spent more than $3.6 billion since 2002 in acquiring companies like VSNL (India), Tyco International (US), and Teleglobe (Canada), and in strategic investments in Neotel (South Africa), Tata Communications Lanka Ltd (Sri Lanka) and United Telecom Limited (Nepal).
 
Tata Communications, formerly Videsh Sanchar Nigam Ltd, has hired Standard Chartered to advise it on the potential purchase.

The potential acquisition of C&WW would add 425,000km of cable and satellite connections linking 150 countries in every continent to Tata Communication's own 235,000km of cables, including one of the most advanced and largest submarine cable networks that connect Africa to Europe Asia and India.

The acquisition would also add 20,500km of the UK's largest fibre network, which is used by business users of telecoms, nationwide access through a combination of fibre, digital, microwave, radio and leased circuits to Tata Communications Tier-1 IP network with connectivity to more than 200 countries across 400 PoPs. 

C&WW, the third-largest supplier of IP services to FTSE350 customers behind British Telecom and Verizon Communications, has a strong market presence in many of the former British colonies, especially in the Caribbean region.

In the UK, its network has presence of over 400 towns and cities, with more than 864 unbundled exchanges covering 56 per cent of the UK population. Its services are used by British businesses including Next, Tesco, United Utilities, and government agencies.

C&WW's international wholesale telecoms division accounts for over one-third of its UK revenues, though its international wholesale voice operation and European IP is commercially struggling.

C&WW posted net profit of $331.7 million in 2011 on revenues of $3.6 billion.

After its demerger in March 2010 from Cable and Wireless Plc, the Bracknell, Berkshire-based company's operational performance has been a concern to its shareholders.

Due to a cut in public sector spending and stiff competition, the company has issued a string of profit warnings and last reported a pre-tax loss of £433 million for the six months end September 2011.

However, the proposed C&WW acquisition will not come cheap for Tatas since Vodafone currently has deep pockets with around $7 billion cash mainly through sale of its stakes in joint ventures in China, France, Japan and Poland.

It is reported that private equity firm Apax Partners is also eying CWW and is weighing a $1.1 billion to $1.2 billion bid.

Vodafone has until 12 March to say whether it intends to make an offer for C&WW under the new UK takeover rules, while Tata Communications' deadline is 29 March.