Vodafone's £1.04bn offer for Cable & Wireless Worldwide has hit a roadblock with CWW's largest shareholder declining to back the bid.

The acquisition, which on Monday won the support of the CWW board and a number of large shareholders, would vault Vodafone from fourth to second place after BT Group in the ranking of the largest UK telecoms operators.

But fund manager Orbis Investment Management, CWW's largest investor with over 19% of the stock, said the 38p a share final offer does not "reflect the value" of a company whose stock price has collapsed over the last two years.

Orbis has held a major stake in Cable & Wireless for a decade, and has used the share price collapse to significantly increase its position, more than doubling its stake at an average of 53p a share over the last two years, according to one banking source.

Orbis held 6.8% of the shares in March 2010, at the time the company demerged from its sister operation Cable & Wireless Communications, which operates in the Caribbean. It declined to comment on the cost of its investment in CWW, but it is thought the company could take a painful hit if the current offer goes ahead.

The fund manager said: "The proposed deal is clearly attractive for Vodafone shareholders. However, we are concerned that the offer price does not appear to reflect the value inherent in CWW. Although we believe the CWW management team has handled the bid process responsibly, we have declined to give an irrevocable undertaking or letter of intent to support the transaction."

Vodafone must secure 75% of the vote at a yet to be scheduled shareholder meeting for its acquisition to go ahead. Orbis has not said it will vote against the offer, but holds a large enough stake to block the deal if only three-quarters of shareholders use their votes.

Orbis may prefer Vodafone to change the acquisition format from a vote to a "takeover offer" by which individual shareholders could be bought out, allowing some to negotiate a higher price. In its offer document, Vodafone has reserved the right to switch to a takeover offer.

Analysts said the chances of Vodafone increasing its offer were slim, given the only other bidder, Tata Communications, drew back last week having reportedly offered just 25p a share.

"The risk is Vodafone walks away completely and shareholders are left without any offer," said Nick Brown at Espirito Santo bank.

Five major shareholders – JP Morgan Asset Management, Investec Asset Management, Cyrte Investments, RBC Global Asset Management and Sky Investment Counsel – representing almost one fifth of the shares, have declared their support for the deal.

The merger would boost Vodafone's UK revenues to nearly £7bn, behind BT with £15.6bn, but allowing it to overtake rival mobile networks Everything Everywhere and O2 in income. It will allow the UK's third largest mobile operator to take on BT and Virgin Media in offering telecoms and data hosting solutions to the business sector.

CWW's fibre-optic network, one of the largest in the UK with 20,500km of cables, will also allow Vodafone to carry more mobile internet traffic at a lower cost.

Analyst Robin Bienenstock at broker Sanford C Bernstein said Vodafone would gain "a strategic advantage in the UK market" and present a "greater competitive threat" to both BT and Virgin Media, which is hoping half of its future growth will come from business customers.

Vodafone chief executive Vittorio Colao said: "The acquisition of Cable & Wireless Worldwide creates a leading integrated player in the enterprise segment of the UK communications market and brings attractive cost savings to our UK and international operations."

Colao declined to put a number on job cuts or say whether CWW's current chief executive Gavin Darby, a former executive at the mobile company, would have a role in the combined group. Darby stands to gain over £1m from the deal just five months after replacing John Pluthero at the helm.

He is contractually entitled to a year's salary of £600,000, whether or not he gets a job under the new owners. The board may also grant a portion of the £600,000 in stock options he was given on joining, although it is understood Darby's remuneration would stay below seven figures. Lastly, he will book a £420,000 profit on 2m shares he bought with his own money on joining.

The Communication Workers Union raised concerns over job losses. Andy Kerr, CWU deputy general secretary, said: "This appears to be a no-brainer for Vodafone who look set to make significant tax savings on CWW losses which could cover the purchase price. We would have thought more tax evasion stories would be the last thing Vodafone would want.

"In our experience, whenever there's a takeover there are job losses and staff in CWW in particular will be feeling concerned right now."

CWW shares closed up 14% at 36.44p, slightly below the Vodafone offer price.