Mergers & aquisitions : the case of Vodafone and cable & wireless worldwide

The larger a firm becomes, the harder it is for the firm to meet shareholders` growth demands through organic growth. In order to meet these increasing growth demands, larger firms tend to look for opportunities to grow through mergers and acquisitions. However, growth can only be produced through mergers and acquisitions when the value of the two firms combined is higher than the individual values of the two firms. On April 23, 2012, Vodafone Group PLC, the worlds leading mobile operator, completed the acquisition of Cable & Wireless Worldwide through a tender offer. This dissertation analyses the potential value creation made possible by Vodafone Group PLC`s acquisition of Cable & Wireless Worldwide. The paper starts by reviewing literature on valuation methods and mergers and acquisitions, and discusses which approach that might yield the best results. Historical data on both firms is then assessed and provides a basis for the next step, which is valuing both firms individually and combined. The final part of the paper analyses the acquisition process itself with a basis in the actual execution. The individual valuations of the firms indicate an undervaluation of Vodafone Group PLC and a strong overvaluation of Cable & Wireless Worldwide compared to the share prices over the last twelve months. The combined firm valuation shows significant potential of value creation resulting from the acquisition. Finally, the analysis of the acquisition process concludes that the acquisition price provides a fair distribution of value between the firms and that the acquirers` choice of payment is a good one considering the circumstance