CWW maintains guidance while Vodafone hovers

Takeover target Cable and Wireless Worldwide (CWW) says its outlook for full year 2011/12 is unchanged, with the firm also revealing written commitments for a £260m refinancing facility.

The reason all of this matters is not because CWW is a particularly big or impressive company, it's because Vodafone has confirmed it is in preliminary discussions with the firm for a takeover.

That news sent the stock up 30% on Monday; investors now want to see whether Vodafone is being sold a pup.

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On the face of today's update a certain rationality now prevails at CWW. The company, to be fair, is the communications supplier to 70 of the FTSE 100 companies, that is a client base many firms would kill for.

The new Chief Executive, Gavin Darby, has been in post for three months since the removal of the unpopular Jon Pluthero, who made £2.8m in 2010 despite a 70% drop in the firm's share price.

Darby, who came from Vodafone, says CWW has "significant assets" but thinks salvation will be in pure cash generation. In today's update, the turnaround plan is outlined and it states loud and clear: "cash generation, measured by trading cash flow, will be our key performance metric."

CWW's business is delivering communications services. It has a sizable undersea and underground cable network that is particularly attractive to Vodafone, hungry for more capacity rather than having to route calls through BT's infrastructure.

In the absence of a firm commitment from Vodafone, however, Darby's plan amounts to incentivising senior management to prioritise cash flow, focusing on improving returns on capital expenditure (instead of seeing cash frittered away on operational expenses) and cross-selling to the client base with a particular emphasis on managed data services.

Vodafone may look at all that effort and think, "who cares, lets sell it off piece by piece and keep the cable network". Then again, if Darby can stabilise what is a profoundly distressed company, he may tempt other bidders to put the heat on his old employers

BS