India's Tata Communications
Troubled C&W Worldwide has fixed telephone lines that can be used to relieve pressure on mobile networks, and provides voice, data and other services to major British firms such as Next
It also has an international cable network connecting more than 150 countries, as well as five offices and 150 customers in India, which analysts said could be of particular interest to Tata Communications.
A successful bid by Tata would be the biggest British acquisition by an Indian firm since sister company Tata Motors bought Jaguar Land Rover for $2.3 billion (1.4 billion pounds) in 2008.
The Indian company, part of the tea-to-technology Tata Group conglomerate, said in a regulatory filing on Thursday its plans for an all-cash bid were at a very preliminary stage, adding it would decide on whether to make an offer by March 29.
Vodafone said in February it was in the early stages of looking at a bid for C&W Worldwide, which has performed dismally since it split from the Caribbean-focused Cable & Wireless Communications
Shares in C&W Worldwide, which has issued a string of profit warnings and is now on its third chief executive, rose more than 25 percent in early London trade on hopes of a bidding war.
At 1405 GMT the stock, which had lost more than three quarters of its value in the 18 months before Vodafone confirmed its interest, was up 15.7 percent at 32.36 pence.
Vodafone shares were up 0.9 percent at 170.9 pence, broadly in line with the UK's benchmark FTSE-100 index <.FTSE>, while Tata Communications shares closed up 1.1 percent in Mumbai, having risen as much as 5 percent earlier.
C&W Worldwide issued a statement noting Tata's interest. A spokesman said the company had not received an approach.
A JOINT BID?
Macquarie Securities analyst Guy Peddy said there was a strategic rationale for Tata buying C&W Worldwide, which has links with India going back to 1870.
However, Tata Communications' poor financial results - it has posted losses in the past two fiscal years to March 2011 and also in the first nine months of the current fiscal year - and the Indian government's substantial stake could restrict it from bidding aggressively.
Tata Group took a 50 percent stake in the former Indian state monopoly in 2002. The Indian government still owns 26 percent of the firm, which also has a New York listing
One banker said buying C&W Worldwide would be a stretch for Tata, which has a capitalisation of $1.4 billion (878.7 million pounds). The Indian group already has net debt of $1.5 billion (941.5 million pounds) on core earnings of $350 million (219 million pounds), giving it leverage of 4.1 times, according to Thomson Reuters data.
Peddy also said Vodafone would also be better placed to take advantage of C&W Worldwide's tax losses, which he said were worth up to 30 pence a share.
He said a joint bid was a possibility. Vodafone could parcel the international connectivity for Tata and keep the UK assets, he said. This would require process and asset engineering to separate the business but it is not impossible.
Vodafone has until March 12 to announce whether it intends to make an offer, although it could be granted an extension at the behest of C&W Worldwide if it thinks an approach has merit.
Like Tata, Vodafone revealed its interest in response to a media report, and it is still undecided on its next step, according to a source close to the situation.
Analysts have said it would take a lot of due diligence to reassure Vodafone's investors that C&W Worldwide's UK network was a sufficient prize for buying the whole group.
(Additional reporting by Ketan Bondre, Devidutta Tripathy, Victoria Howley and Kate Holton.; Editing by Alex Richardson and Mark Potter)