Vodafone has agreed to buy Cable & Wireless Worldwide (CWW) for £1.04bn, giving it a fixed-line network.
The world's biggest mobile phone operator by revenue said buying corporate telecoms specialist CWW would make it a leading player in both fixed-line and mobile telecom services to Britain's businesses, and it could make cost savings by using CWW's networks, both in the UK and internationally.
Vodafone is offering CWW shareholders, who have had a torrid time since the group split from the former Cable & Wireless in March 2010, 38 pence a share in cash, a 92 per cent premium to the price before it declared its interest in February.
CWW has issued three profit warnings, had the same number of chief executives and has suspended its dividend since it split.
Vodafone can use CWW's 20,500km of fibre cables to shift data from its wireless network, which is under strain as more and more people use data-hungry smartphones.
The mobile giant currently rents fixed lines for such capacity from the likes of CWW and BT.
The deal also boosts Vodafone's enterprise business with the addition of contracts to provide voice, data and hosting services to British government departments and companies, and it gains CWW's international cable network.
India's Tata Communications was also in talks to buy CWW, but withdrew last week when the two sides could not agree on a price.
"It's positive for Cable & Wireless because there was still some scepticism in the market whether Vodafone would bid at all, particularly after Tata stated it was unlikely to bid," said Espirito Santo analyst Nick Brown.
He said Tata could re-enter the race, but thought it was unlikely to at this price level.
"They would be unable to compete if Vodafone did enter a bidding war," he said.
Vodafone's offer, which CWW said was "fair and reasonable" is backed by shareholders holding 18.6 per cent of CWW's stock.
Analysts had said Vodafone could use some of CWW's losses to offset some of its tax bill, but Vodafone said it did not believe it could use the tax losses.
CWW's history stretches back to the middle of the 19th century, when it laid a telegraph cable between London and Dublin.
Links between Britain and India, the Caribbean, Asia, Australia and the United States followed.
The group ran into trouble, however, within months of its demerger from Cable & Wireless Communications in 2010, a deal engineered by former chief executive John Pluthero, who pocketed more than £10m in bonuses from the business.
Pluthero returned as chief executive of CWW in June 2011 but left within six months after the group posted a £433m half-year loss.
CWW's shares have plunged from a high of 98.5 pence when it listed to a low of 13 pence in November 2011, as it blamed a faster-than-expected drop in voice revenue, intense competition in data services and government cutbacks for its woes.
UBS is acting as sole financial adviser to Vodafone and Vodafone Group, while Barclays and Rothschild are acting as joint financial advisers to CWW.