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20-03-2012 11:10:00

UPDATE: Tata Communications To Make Formal Cash Offer For Cable & Wireless Worldwide - Source

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--Tata Communications to make a formal cash offer for Cable & Wireless, says person familiar with the matter

--Tata Communications will raise up to $2 billion in short-term debt to fund the potential purchase, says the person

--Tata Communications is likely to raise debt via a special purpose vehicle, registered in the Netherlands, says the person

(Recasts lead and adds details throughout.)

By Kenan Machado

Of DOW JONES NEWSWIRES

MUMBAI -(Dow Jones)- India's Tata Communications Ltd. (500483.BY) will make a formal cash offer to buy the U.K.'s Cable & Wireless Worldwide PLC (CW.LN), and plans to raise up to $2 billion in debt to finance the potential acquisition, a person familiar with the situation said Tuesday.

Tata's decision to bid for the U.K.-based telecom firm sets the stage for a bidding war with U.K. telecom giant Vodafone Group PLC (VOD.LN) which has expressed an interest in Cable & Wireless earlier this month. Vodafone has until March 29 to make a binding offer for the British fiber-optic network operator.

The person familiar with the situation said Tata has received commitments from banks to raise funds although final documents haven't yet been signed. Tata will likely raise the debt via a special purpose vehicle registered in an offshore country, likely the Netherlands, because of favorable tax laws, the person said. Vodafone declined to comment.

Sanford C. Bernstein in a recent report estimated that an acquisition could be valued at GBP700 million to GBP900 million, or roughly $1.1 billion to $1.4 billion.

A bid by Tata is yet another signal of the increasing appetite of Indian companies for global assets as they look to establish and consolidate their presence around the world. Tata Communications, part of the Tata Group conglomerate, has been ahead of the acquisition pack by Indian companies. The salt-to-software company has spent about $17.37 billion on foreign acquisitions since 2001, with GBP9.57 billion spent in the U.K. alone. Its notable British purchases include the Tetley Group for $432 million in 2000, U.K.-headquartered Corus Group in 2007 for $12.2 billion, and Jaguar Land Rover PLC for $2.3 billion in 2008.

Analysts say a successful bid by Tata Communications will help the provider of Internet services and undersea cable landing systems access Cable & Wireless's enterprise customers in Europe, helping the Indian company offset the losses in its main voice business.

Cable & Wireless has been struggling since its spinoff from parent Cable & Wireless PLC in 2010. Before news of the potential bids, its shares had fallen around 73% over the 12 months following three profit warnings, which it blamed on the U.K. government's austerity budget.

The company's chief executive, John Pluthero, left in November, and was replaced by former Vodafone executive Gavin Darby. Financial chief Tim Weller also left in July, with deputy finance chief Ian Gibson taking his place.

Cable & Wireless shares surged on the news of an impending Tata Communications offer. At 1034 GMT, they were up 3 pence, or 7.3%, at 37 pence, valuing the company at GBP1.03 billion. The company is the highest riser on the FTSE 250 index, which is down 1.2%. The Indian company closed 3.2% higher at INR230.35 each in a positive broad market.

Tata Communications would have to make a bid "in the order of 45 pence-a-share in very rough terms" to get Cable & Wireless board support, said Tom Gidley-Kitchin, an analyst at Charles Stanley.

He added that Tata Communications' first offer may not be its last.

A bid from Tata Communications makes more sense than a bid from Vodafone given Tata Group's history of turning around companies like Corus and Jaguar, he said.

-By Kenan Machado and Romit Guha, Dow Jones Newswires; +91-9967586928; romit.guha@dowjones.com

--Lilly Vitorovich in London contributed to the story.

(END) Dow Jones Newswires

March 20, 2012 07:10 ET (11:10 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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