The English Premier League (EPL) has negotiated a record TV deal which will generate £5.5 billion of revenue over the next 3 years – beginning in the season 2013–14. This represents a 70% increase on the previous deal. Controversy has arisen over some initial proposals put forward by the EPL as to how the money will be spent. The owners of the clubs in the Championship of the English Football League (EFL) are particularly concerned about the size of the proposed payments to the three teams relegated from the EPL.

Some 30 years ago the money generated from the sale of television rights was equally shared between all the teams in the then four divisions of the English Football League (EFL). In 1992 the top division of the English Football League broke away and formed the English Premier League (EPL). This newly formed EPL negotiated a separate television deal and kept the majority of the money. However, some payments were and still are made to the teams in the EFL and to organisations such as the League Managers Association and Professional Footballers Association. For example in 2011-–12 the EPL donated £189.4 million of the £1.2 billion generated from that year’s TV deal.

The majority of the money donated by the EPL is spent in two main ways. First, some money is redistributed to all the teams in the EFL: i.e. The Championship, League 1 and League 2. These are known as ‘solidarity payments’ and in 2011–12 the EPL spent £49.8 million on this scheme. Each club in the Championship received £2.3 million. It has been proposed that the amount paid into this scheme should be increased by 5% in the season 2013–14. Second, a relatively large amount of money is paid over a four-year period to the three teams relegated each season from the EPL into the Championship. These are known as ‘parachute payments’ and in the season 2011–12 the EPL spent £90.9 million on this scheme. The rationale for having parachute payments is to help the relegated teams adjust their wage bills to the much lower revenue streams that come from playing in the Championship. Proposed changes to the scheme are outlined in Table 1.

The chairmen of the football league clubs met on the 20th March 2013 and a number of them expressed concerns about the relatively large increase in the parachute payments compared to the solidarity payments. They were particularly concerned that the changes to the funding would damage the competitive balance of the Championship.

Competitive balance refers to how the most talented players are distributed amongst the teams in a league. For example, are the majority of the most talented footballers playing for just a couple of the teams? In this case the league is competitively imbalanced and the teams with the best players will tend to win far more games than the other teams. The outcome of the league will be very predictable. If the most talented players were more evenly spread across all the teams in the league, then it would be more competitively balanced. Matches and the outcome of the league would become more unpredictable.

Does the level of competitive balance matter? Some sports economists have argued that it may have a significant impact on the success of the league. This is because fans may value the unpredictability of the results. It follows that closer and more unpredictable results will generate higher match-day attendances and increase the revenues of the clubs.

This is an interesting argument and is the opposite of what economic theory would predict for most markets. For example, the standard prediction would be that as firms outperform their rivals, they generate more revenue and profit. If they manage to drive all their rivals out of business, they would become a pure monopoly and make large abnormal profits. However in professional team sports the outcome may differ significantly. If the unpredictability of the league is highly valued by fans, then teams will generate more revenue when they have strong and evenly matched rivals.

It has been reported that further discussions about the distribution of the money will take place this month with the owners of the championship clubs arguing that there should be smaller increases in parachute payments and much larger increases in solidarity payments. Representatives of the EPL have argued that the parachute payments do not distort competition and make the championship predictable. They point out that at present only one of the top six teams in the championship (Hull) receives parachute payments, while only one of the teams promoted from the Championship in the season 2012–13 (West Ham) received these payments.

Articles
Premier League warned over rich and poor split in wake of TV deal The Guardian, Owen Gibson (19/3/13)
Championship clubs angered by Premier League parachute boost Daily Mail, Charles Sale (6/2/13)
Football league is to lessen the advantage of parachute payments The Guardian, Owen Gibson (20/3/13)
Championship clubs warn Premier League over hike in parachute payments for relegated teams The Independent, Majid Mohamed (20/3/13)
Increased parachute payments could lead to a salary cap in the Championship The Post, A. Stockhausen (21/3/13)
Scudamore:Parachute payment system fair Eurosport, Andy Eckardt (22/3/13)
Parachute payments more than a softened landing The Daisy Cutter, Richard Brook (21/3/13)

The Big Four are well known: Deloitte, Ernst and Young, KPMG and PWC. They act as auditors for 90% of the UK’s stock-market listed companies. They have a very close relationship with the companies that they audit and because of this have faced criticism of not warning of the financial crisis. A further accusation is that the relationship between auditors and managers has become blurred.

In some sense, there is a problem of divorce of ownership from control. The companies that are audited by the Big Four have shareholders who are interested in profits and their dividends. But they employ managers who are responsible for the day-to-day running of the business. However, there are concerns that the auditors have become more concerned with meeting the interests of the managers and not of the shareholders. It has been suggested that the company’s management tend to ‘present their accounts in the most favourable light, whereas shareholder interests can be quite different.’ Laura Carstensen, the chair of the Audit Investigation Group said:

It is clear that there is significant dissatisfaction amongst some institutional investors with the relevance and extent of reporting in audited financial reports … management may have incentives to present their accounts in the most favourable light, whereas shareholder interests can be quite different.

The Big Four have been criticised for limiting competition in the industry. The Competition Commission has said that companies typically stay with the same auditing firm and this acts to limit competition. One suggestion to encourage competition is to enforce rotation of Auditors. However, the Big Four have said that the market remains competitive, ‘healthy and robust’ and that any enforcement as noted above would not be in the public interest. Other, smaller auditing companies have praised the preliminary report of the Competition Commission. One firm said:

No one solution will achieve market correction, but rather a combination of tendering requirements, encouragement of transparency and dialogue between auditors, companies and investors, and reform of outdated exclusionary practices should provide a backdrop for a healthier FTSE 350 audit market.

The report is not yet final, but the future of the Big Four is somewhat uncertain, especially with the European Commission’s desire to break them up. The following articles look at this industry.

Big Four accountants reject claims over high prices and poor competition The Guardian, Josephine Moulds and David Feeney (22/2/13)
Competition Commission raps Big Four accountants BBC News (22/2/13)
Big Four’s rivals welcome audit shake-up Financial Times, Adam Jones (22/2/13)
UK’s “Big Four” accountants under fire from watchdog Reuters, Huw Jones (22/2/13)
Big Four chastised by Competition Commission The Telegraph, Helia Ebrahimi (22/2/13)
The uncompetitive culture of auditing’s big four remains undented The Guardian, Prem Sikka (23/2/13)
Big Four accountants ‘in closed club on audits’ Independent, Mark Leftly (23/2/13)

The technology sector is highly complex and is led by Apple. However, as the tablet market is continuing to grow, it is becoming increasingly competitive with other firms such as Samsung gaining market share. Although both firms sell many products, it is the growing tablet market which is one of the keys to their continued growth.

Tablet PCs have seen a growth in the final quarter of 2012 to a high of 52.5 million units, according to IDC. Although Apple, leading the market, has seen a growth in its sales, its market share has declined to 43.6%. Over the same period, Samsung has increased its market share from 7.3% to 15.1%. While it is still a huge margin behind Apple in the tablet PC market, Samsung’s increase in sales from 2.2 million to 7.9 million is impressive and if such a trend were to continue, it would certainly cause Apple to take note.

It’s not just these two firms trying to take advantage of this growing industry. Microsoft has recently launched a new tablet PC and although its reception was less than spectacular, it is expected that Microsoft will become a key competitor in the long run. There are many factors driving the growth in this market and the war over market share is surely only just beginning. The chart shows the 75.3% growth in sales in just one year. (Click here for a PowerPoint of the chart.)

A Research Director at IDC said:

We expected a very strong fourth quarter, and the market didn’t disappoint…New product launches from the category’s top vendors, as well as new entrant Microsoft, led to a surge in consumer interest and very robust shipments totals during the holiday season’

Apple has been so dominant in this sector that other companies until recently have had little success in gaining market share. However, with companies such as Samsung and ASUS now making in-roads, competition is likely to become fierce. There are already concerns that Apple’s best days are behind it and its share price reflects this. People are now less willing to pay a premium price for an Apple product, as the innovations of its competitors have now caught up with those of the leading brand name. The following articles consider this growing market.

Samsung gain tablet market share as Apple lead narrows BBC News (1/2/13)
Apple snatches US lead from Samsung Financial Times, Tim Bradshaw (1/2/13)
Apple revenues miss expectations despite high sales figures BBC News (24/1/13)
Samsung eats into Apple sales in the tablet market Mirror, Ruki Sayid (1/2/13)
MacWorld’s Apple celebration opens amid fears of tech giant’s decline Guardian, Rory Carroll (31/1/13)
Samsung’s tablet sales soar as Apple’s grip on market loosens Daily News and Analysis, Richard Blagden (2/2/13)
Samsung takes a nibble out of Apple’s tablet lead InfoWorld, Ted Samson(31/1/13)
Tablet Sales up 75% as Samsung and Asus Gain on Apple Interational Business Times, Edward Smith (31/1/13)

Over the past five years the Office of Fair Trading (OFT) has been closely studying the market for personal bank accounts in the UK. Last week, it announced its latest findings and the evidence seems to suggest that there remains a lack of competition in the market.

On the positive side, it reports that there has been a large fall in unarranged overdraft fees. However, despite this, according to the OFT banks still make on average £139 per year from every active current account. Furthermore, concentration has increased with the four largest banks (Barclays, Lloyds, HSBC and RBS) now accounting for 85% of the market and there has been little new entry. It appears that one of the key factors in enabling these main players to dominate the market and reap high profits is a lack of consumer switching behaviour. According to the OFT chief executive, Clive Maxwell:

Customers still find it difficult to assess which account offers the best deal and lack confidence that they can switch accounts easily. This prevents them from driving effective competition between providers.

Despite all these concerns, the OFT declined to refer the market to the Competition Commission for a more in-depth investigation and potential remedial action. Instead, the OFT will look at the market again in 2015. Richard Lloyd, the executive director at the consumer organisation Which?, was disappointed with this decision and was quoted in the The Guardian as saying:

Everyone – consumers, the government, leading bankers and now the OFT – seems to agree that big change is needed in banking, and that much greater competition on the high street is urgently needed to make the banks work for customers, not bankers.

Whilst at least for the moment, the Competition Commission will not get the chance to take action, there are still several reforms underway that may affect competition in the market. First, the OFT is increasing pressure on banks to allow consumers to have portable account numbers that they can take with them if they switch provider. Second, as a result of the Independent Commission’s review, banks will be required to switch a customer’s account in one week, rather than the average of 18 days it currently takes, and this process will become much more seamless. Finally, Lloyds has agreed to sell over 600 branches to the Co-op in order to meet the European Commission’s requirements following the government bail-out of the bank in 2008. This will increase the Co-op’s share of the current account market to 7%. It will be interesting to see how these reforms affect the market. If there is not substantial evidence of increased competition then the market is likely to face more scrutiny from the competition authorities.

Bank accounts: OFT says significant change needed BBC (25/01/13)
OFT: banks failing consumers The Economic Voice (25/01/13)
Let’s make bank accounts as easy to switch as mobiles The Telegraph, Andrew Oxlade (28/01/13)
OFT chief calls for more competitive banking sector The Telegraph, Denise Roland (30/01/13)

Comet, Peacocks, Woolworths, JJB, Jessops and now HMV – they all have one thing in common. The recession has hit them so hard that they entered administration. HMV is the latest high street retailer to bring in the administrators, despite insisting that it does have a future on the UK’s high streets. With debts of £176m and huge competition from online retailers, the future of HMV is very uncertain.

Over the past decades, companies such as Amazon, ebay, LoveFilm, Netflix and apple have emerged providing very stiff competition to the last remaining high street seller of music and DVDs. People have been turning more and more to the internet to do their shopping, with cheaper prices and greater choice. The speed of delivery, which in the past may have been a disadvantage of buying from somewhere like Amazon, is now barely an obstacle and these substitute companies have created a difficult environment for high street retailers to compete in. Despite going into administration, it’s not necessarily the end of the much-loved HMV. Its Chief Executive said:

We remain convinced we can find a successful business outcomes. We want to make sure it remains on the high street … We know our customers fell the same way.

While the recession has undoubtedly affected sales at HMV, is this the main reason for its demise or are other factors more relevant? As discussed, online retailers have taken over the DVD and music industry and with downloading increasing in popularity and CD/DVDs on sale in numerous locations, including supermarket chains, HMV has felt the competitive pressure and its place on the high street has come into question. As Neil Saunders, the Managing Director of Conlumino said:

By our own figures, we forecast that by the end of 2015 some 90.4 per cent of music and film sales will be online. The bottom line is that there is no real future for physical retail in the music sector.

Further to this, prices have been forced downwards and HMV, having to pay high fixed costs to retain their place on the high streets, have been unable to compete and remain profitable. Another contributing factor could be an outdated management structure, which has not responded to the changing times. Whatever the cause, thousands of jobs have been put at risk. Even if buyers are found, some store closures by the administrators, Deloitte, seem inevitable. Customer gift vouchers have already become worthless and further losses to both workers and customers seem likely. It is thought that there will be many interested buyers and huge support from suppliers, but the former is likely to remain a relatively secretive area for some time.

This latest high street disaster will undoubtedly raise many questions. One theory about recovery from a recession looks at the need for many businesses to go under until the fittest are left and there is sufficient scope for new businesses to emerge.

Could it be that the collapse of companies such as Woolworths, HMV, Comet, Jessops and Blockbuster is an essential requirement for economic recovery? Or was the recession irrelevant for HMV? Was its collapse an inevitable consequence of the changing face of Britain’s high streets and if so, what does the future hold for the high street retailers? The following articles consider the demise of HMV.

HMV: a visual history BBC News (15/1/13)
Chief executive says ‘HMV still has a place on the high street’, as customers are told their gift vouchers are worthless Independent, James Thompson (15/1/13)
Potential buyers circle stricken HMV Financial Times, Andrea Felsted (15/1/13)
HMV and independents to urged to work together to save in-store music market BBC News, Clive Lindsay (15/1/13)
HMV record chain was besest by digital downloads and cheap DVDs The Guardian (15/1/13)
The death of traditional retailers like HMV started when we caught on to one-click and the joy of owning DVDs wore thin Independent, Grace Dent (15/1/13)
HMV shoppers: ‘I’m disappointed, but it’s understandable why they went bust The Guardian, James Brilliant (15/1/13)
HMV: Record labels could take HMV back to its 1920 roots The Telegraph, Graham Ruddick (15/1/13)
HMV’s future seen as handful of stores and website Reuters, Neil Maidment and James Davey (15/1/13)
HMV leaves social gap in high street BBC News, Robert Plummer (15/1/13)
Is there good news in HMV’s collapse? BBC News, Robert Peston (15/1/13)
Is it game over for UK retail? The Guardian, Larry Elliott (18/1/13)
High Street retailers: Who has been hit hardest? BBC News (16/1/13)

Last week, the European Commission imposed a record fine of almost €1.5b on a group of firms found to have been involved in price fixing. Between 1996 and 2006 these firms fixed world-wide prices of cathode ray tubes which are used to make TV screens and computer monitors.

The firms involved in fixing the prices in one or both of these markets included household names such as Samsung, Panasonic, Toshiba and Philips. As these tubes accounted for over half the price of a screen this clearly had a significant knock-on effect on the amount final consumers paid. The European competition agency only discovered the cartel when it was informed that it had been in operation by Chunghwa, a Taiwanese company that had also been involved. Therefore, under the Commission’s leniency policy Chunghwa was granted full immunity from the fines.

The cartel members held frequent meetings in cities across Europe and Asia. The top level meetings were known as ‘green meetings’ as they were often followed by a round of golf. Interestingly, this is not the first time the game of golf has featured in an international cartel. In the famous lysine cartel an informant working for the FBI used the quality of the golf courses to convince the cartel members to meet in Hawaii, where the FBI had the jurisdiction to secretly record the meeting as evidence.

The screen tube cartel is one of the most highly organised cartels the European Commission has ever detected. Different prices were even fixed for individual TV and computer manufacturers. Furthermore, compliance with the cartel agreement was strictly monitored with plant visits to audit how much firms were producing. The cartel was also clearly very aware that it was breaking the law and that information needed to be concealed as some of the documents discovered stated that they should be destroyed after they had been read. One document even said that:

“Everybody is requested to keep it as secret as it would be serious damage if it is open to customers or European Commission.”

Another interesting feature of the cartel is that it occurred at a time when the technology was being replaced by LCD and plasma screens. Therefore, the cartel appears to have been partly motivated by a desire to mitigate the negative impact the declining market would have on the firms involved.

According to the Independent newspaper:

“Philips said it would challenge what it called a disproportionate and unjustified penalty. Panasonic and Toshiba are also considering legal challenges. Samsung reserved its comment.

TV makers in record 1.47bn-euro fine BBC News (05/12/12)
TV computer makers fined $1.93 billion for price fixing Corporate Crime Reporter (05/12/12)
European antitrust fines: a new wave of deterrence? EurActiv, Mario Mariniello (11/12/12)

Most real-world markets are a long way from the perfect information setting assumed in perfectly competitive markets. Many industries therefore rely heavily on word of mouth to increase demand. This is especially true in the digital age where information can spread extremely rapidly and many websites encourage consumer ratings and reviews. Here, information becomes more and more valuable as it is shared with other people.

However, the economist Joshua Gans has suggested that traditional business models are not well suited to fully exploiting the benefits of the sharing of information. This is because, whilst enthusiastic consumers spread the word, the seller has traditionally acted as a gate-keeper, maintaining complete control over who obtains the product. The problem is that this creates a friction which can dampen momentum for the product from building.

In contrast, Gans describes a novel alternative strategy that was used by the band the XX when they released their second album earlier this year. As is becoming more and more common, the band premiered the album as an online stream. However, what was unique about the XX’s approach was that they gave the stream to a single superfan. They hoped that this chosen fan would initiate the spreading of the stream amongst other fans. After a worrying delay in which he enjoyed his monopoly ownership, this is what he eventually did. Just 24 hours later the stream had been player millions of times and the site crashed under the burden.

Of course, one reason why suppliers may need close control is to be able to charge for the product. If the sharing information must involve giving something away for free, it typically makes no commercial sense. However, Gans also points out that recommendations are more credible if the information has been costly to obtain. Otherwise, it may simply be cheap talk and therefore carry little value.

The balancing act for suppliers is therefore to introduce a hurdle cost in obtaining the information whilst trying to ensure that, once it has been passed on, the recipient encounters as little friction as possible in making use of it. Gans suggests that alternative business models can be developed which achieve this balance. If these can profitably encourage the sharing of information a win-win situation for sellers and buyers is created.

Furthermore, Gans is experimenting with selling his new book about sharing information under an example of one such model. Having bought the e-book for $4.99 you will find a coupon at the back which you can pass on to a friend or family member which allows them to buy their own copy of the book for a mere $0.99. However, as he points out, there is a potential danger to this strategy:

“All my readers could form a collective and potentially buy one copy for $4.99 and then a million for $0.99.”

He has said that he plans to be report back on how the book has sold on his blog at a later date, so it will be interesting to see whether or not the experiment was successful.

The folly of replicating the physical world HBR Blog Network, Joshua Gans (17/11/10)
A shared pricing experiment for my book Digitopoly, Joshua Gans (05/10/12)
Information wants to be…..shared O’Reilly Tools of Change for Publishing, Joe Wikert (16/10/12)

A modern day hindrance is spam email clogging up your inbox with, for example, offers for cheap drugs or notifications that you will inherit enough money to retire to the Bahamas. A recent paper by Justin Rao and David Reiley in the Journal of Economic Perspectives investigates the economics of spam mail (which, as I discovered, from the article gets it’s name from a Monty Python sketch). Remarkably, they quote figures suggesting that 88% of worldwide email traffic is spam. Their paper then provides a number of interesting insights into the business of spam mail.

First, given that most recipients simply delete it, why is spam mail sent out? For the benefits of sending it to exceed the costs, it must be that somebody is reading and responding to it and the costs must also be reasonably low. Rao and Reiley are able to quantify these costs and benefits. They estimate that if 8.3 million spam emails are sent, only 1.8% (approximately 150,000) will reach the intended recipients’ inboxes, with the remainder being blocked or filtered out. Of these 150,000, just 0.25% (375) are clicked on. Furthermore, these 375 clicks generate just a single sale of the advertised product which is typically sold for around $50. Assuming that free entry of spammers leads to them earning zero economic profit, this means that it costs the spammers around $50 to send the 8.3 million emails.

Second, spam mail clearly imposes a considerable negative externality on society. This includes wasted time for consumers and the costs of the extra server hardware capacity required. Rao and Reiley are also able to quantify the size of the negative externality created. First, they estimate that:

“American firms and consumers experience costs of almost $20 billion annually due to spam.”

This can then be compared to the benefits senders of spam get:

“….. we estimate that spammers and spam-advertised merchants collect gross worldwide revenues on the order of $200 million per year. Thus, the ‘externality ratio’ of external costs to internal benefits for spam is around 100:1.”

They then compare this to estimates for other negative externalities such as car pollution and conclude that the size of the negative externality from spam is significantly greater.

Finally, they also point out that it is predominantly the larger email service providers i.e. Yahoo! Mail, Microsoft Hotmail, and Google Gmail who have both the incentives and resources to fund interventions to eradicate spam. For example, in 2009 Microsoft and Pfizer (the manufacturer of Viagra which faces competition from counterfeit versions often advertised by spam) financially supported the successful operation to shut down the largest spam distributor. Clearly, such operations have large positive spillovers for email users. However, as they also discuss, anti-spam technology also increases the fixed costs of competing as an email provider and they suggest that this has contributed to the increased concentration in the market.

The unpalatable business of spam The undercover economist, Tim Harford (19/07/12)
Huge spam botnet Grum is taken out by security researchers BBC News (19/07/12)
Spammers make a combined $200 million a year while costing society $20 billion BGR, Dan Graziano (28/08/12)

After weak Christmas trading, Tesco issued a profit warning – its first in 20 years. Following this, their shares fell in value by some £5bn, but this was met with an announcement of the creation of 20,000 jobs in the coming years, as part of a project to train staff, improve existing stores and open new ones. Yet, Tesco has reported another quarter of falling sales.

Trading times have been challenging and the fact that the UK’s biggest supermarket is struggling is only further evidence to support this. In the 13 weeks to the 26th May 2012, Tesco reported a decline in like-for-like sales of 1.5%. Although much of the £1bn investment in Tesco is yet to be spent, the fact that sales have fallen for a full year must be of concern, not only to its Chief Executive, but also to analysts considering the economic future for the UK.

Consumer confidence remains low and together with tight budgets, shoppers are continuing to be very cautious of any unnecessary spending. Part of Tesco’s recent drive to drum up sales has been better customer service and a continuing promotion war with the other supermarkets. This particular sector is highly competitive and money-off coupons and other such promotions plays a huge part in the competitive process. Whilst low prices are obviously crucial, this is one sector where non-price competition can be just as important.

Although Tesco sales in the UK have been nothing to shout about – the Chief Executive said their sales performance was ‘steady’ – its total global sales did increase by 2.2%. The Chief Executive, Mr Clarke said:

‘Internationally, like-for-like sales growth proved resilient, despite slowing economic growth in China…Against the backdrop of continued uncertainty in the eurozone, it is pleasing to see that our businesses have largely sustained their performance.’

A boost for UK sales did come with the Jubilee weekend and with the Olympics just round the corner, Tesco will be hoping for a stronger end to the year than their beginning. The following articles consider Tesco’s sales and the relative performance of the rest of the sector.

Tesco’s quarterly sales hit by ‘challenging’ trading BBC News (11/6/12)
Tesco UK arm notches up one year of falling sales Guardian, Zoe Wood (11/6/12)
Tesco upbeat despite new sales dip Independent, Peter Cripps (11/6/12)
Tesco sales seen lower in first quarter Reuters, James Davey(11/6/12)
The Week Ahead: Tesco set to admit it is losing ground to rivals Independent, Toby Green (11/6/12)
Tesco’s performance in the UK forecast to slip again Telegraph, Harry Wallop (10/6/12)
Tesco: What the analysts say Retail Week, Alex Lawson (11/6/12)
Supermarkets issue trading updates The Press Association (9/6/12)
The Week Ahead: Supermarkets prepare to give City food for thought Scotsman, Martin Flanagan (11/6/12)
Asda’s sales growth accelerates Reuters, James Davey (17/5/12)
Asda sales increase helped by Tesco Telegraph, Harry Wallop (18/5/12)
Tesco v. Sainsbury’s in trading update battle Manchester Evening News (11/6/12)
Sainsbury’s out-trades Tesco on UK food sales Independent, James Thompson (10/6/12)

Vodafone has offered to purchase Cable & Wireless Worldwide (C&WW), with Vodafone paying 38p per share, making this deal worth £1.044bn.

This deal, however, was rejected by C&WW’s largest shareholder, Orbis, within hours, as the price was not high enough, despite the 38p per share offer representing a 92% premium to the level of C&WW’s share price before the bid interest emerged in February. A spokesperson for Orbis said:

‘Although we believe the C&WW management team has handled the bid process responsibly, we have declined to give an irrevocable undertaking or letter of intent to the support the transaction.’

However, with the only other interested party, Tata Communications withdrawing, Vodafone was the only remaining bidder. As such, many suggest that this deal is a good one for the struggling business, despite Orbis’ claim that it under-values the business.

Adding a UK fixed-line cable to Vodafone’s business will increase its capacity, which is much needed at this moment in time with the added demand for mobile data from increased Smartphone usage. Cost savings are also expected from this merger, as the company will no longer have to pay to other companies to lease its fixed-line capacity.

The bid from Vodafone did help C&WW’s trading performance, which had been worsening for some time and so some shareholders will be glad of the bid. Its shares were up following this deal and it went to the top of the FTSE250. Vodafone will also benefit, as this merger would make it the second largest combined fixed and mobile line operator in the UK.

The trends of these two companies in recent years have been very much in contrast. C&WW had been the larger of the two firms up until 1999, yet the price Vodafone would now pay for the company represents a mere 1% of its current market value. The following articles consider this merger.

Vodafone bids for Cable and Wireless: The end of the line The Economist (24/4/12)
Questor shares tip: Vodafone deal looks goodThe Telegraph, Garry White(23/4/12)
Vodafone puts paid to once-revered C&WW Financial Times, Daniel Thomas (23/4/12)
Top CWW shareholder rejects sale to Vodafone Independent, Gideon Spanier (24/4/12)
CWW accepting Vodafone’s £1bn bid is a good call The Telegraph, Alistair Osborne (23/4/12)
Vodafone agrees £1bn deal for Cable & Wireless Worldwide Guardian, Julia Kollewe and Juliette Garside (23/4/12)
Vodafone agrees £1bn takeover of C&W Worldwide BBC News (23/4/12)