British mobile phone giant
Vodafone Group Plc
(
VOD
) expects to incur costs worth £500 million ($809 million) over the
next four years for the integration of Cable & Wireless
Worldwide. The company acquired Cable & Wireless Worldwide in
July this year for £1.04 billion.
The deal is part of Vodafone's future growth strategies that hinge
on five components. It includes increasing mobile data services,
enlarging growth in enterprise segments, expanding growth in
emerging markets including Eastern Europe, India and Africa,
growing in new areas and maintaining liquid investment in quality
networks.
Over the next few years, mobile data expansion will be the key
growth driver for both Vodafone and the industry at large. The
company is accelerating its investments in faster networks to boost
smartphone sales and increase data traffic. Further, Vodafone aims
to establish a differentiated network across all its regions
through a combined focus on quality networks, IT and partners
network sharing.
The Cable & Wireless acquisition would enhance its enterprise
business, leading to strength in mobile, fixed and cloud services.
Given the rising demand for Internet on cell phones, the deal would
provide high-capacity fiber network to offload streaming video and
other bandwidth services from the mobile network. As a result, this
would minimize the company's need for additional capacity that it
takes on lease from third parties such as
BT Group plc
(
BT
), thereby lowering costs.
Overall, the transaction will bring in high network integration
benefits with quantifiable cost savings. The merger is expected to
deliver cash flow synergies of £150-200 million per year by March
2016 on full integration with free cash flow of £250-300 million in
March 2016.
We are maintaining our long-term Neutral recommendation on
Vodafone. The stock retains a Zacks #3 (Hold) Rank for the short
term (1-3 months).
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