Cable and Wireless Worldwide to buy Daisy Telecom? - 29/11/10
Posted by Cloud Net on Mon, Nov 29, 2010 @ 08:33 AM
In the Sunday Times this week, James Ashton The City Editor suggests that Cable and Wireless Worldwide (CWW) should buy Daisy Telecoms to improve their performance.
At first glance this seems to be an attractive move for CWW since both are telecoms companies concentrating on business traffic. CWW has lots of fibre and Daisy doesn’t. So the merger appears to make a lot of sense with Daisy gaining access to CWW technology and fibre and CWW getting more customers.
Let’s look at the numbers. CWW is worth £1.75bn with a revenue in the last 6 months (just announced) of £1.123bn, yielding a profit before tax of £53m. The market reacted very little to these figures announced on Friday. How about Daisy? Daisy is capitalised at £242m.
Depending on how you look at it – there is very little overlap between the businesses and hence a good fit or there is no synergy. Daisy targets SMEs and has little of its own fibre whilst CWW concentrates on large companies with lots of network fibre–they are in completely different markets. Whichever argument CWW advances the City will take a contrary view.
Assuming that CWW would have to pay a considerable premium for Daisy, for example £300m, could it get value from its purchase? For this to make any kind of sense I would suggest that CWW profits before tax must be predicted to rise by £30m. Unfortunately Daisy reported a turnover of just £107m in the year to March 2010 with brokers suggesting that this would rise to £251m by March 2011. James Ashton even ups this again to £275m. The only way that this is possible is because of the acquisitions undertaken by Daisy. Given that Daisy hasn’t made a profit in the last 5 years and is in the process of a structural reorganisation as well as absorbing Spiritel it seems very unlikely that CWW could perform such miracles.
James Ashton claims that CWW is a company grasping for direction. I beg to disagree – it seems to me that CWW has a good plan with steady organic growth. If that doesn’t sparkle enough for the City, then it is because the City is interested only in the short term.
Daisy Group also has a well-defined strategy clearly to dominate its space with a well-defined plan and proposition. It is a buy and build strategy based on City money. They are currently looking well placed and would not welcome the interference from a larger predator.
Written by David Hill, Chairman, Cloudnet