Vodacom to buy Neotel at an enterprise value of $675M

Vodafone’s African arm Vodacom has reached an agreement to buy South African communication venture Neotel, which is 67.32 per cent held by Tata Communications Limited, for an enterprise value of ZAR 7 billion ($675 million), as per a stock market disclosure.

The structure of the transaction and its commercial terms are subject to regulatory and competition authority approvals.

Apart from Tata Communication, CommuniTel and Nexus Connection are the other shareholders in Neotel, South Africa's second-biggest fixed-line phone operator.

The companies had entered into exclusive talks for due diligence pertaining to the deal last year.

Vinod Kumar, MD and CEO, Tata Communications, said, "It (the deal) is in line with our financial objectives while paving the way for Neotel to improve its value proposition in the South African market.”

"Neotel continues to grow in the South African market and with this, when approved, will enable a greater choice of products and services for our customers and increased competition, while Neotel continues to deliver improved services and grows its customer base," Sunil Joshi, MD & CEO of Neotel, stated.

Neotel, which started operations in 2007, is the second-largest provider of fixed telecommunications services for both businesses (commonly referred to as enterprise services) and consumers in South Africa. The company has access to over 15,000 km of fibre-optic cable, including 8,000 km of metro fibre in Johannesburg, Cape Town and Durban. It also has access to 2 x 12 MHz of 1800 MHz spectrum, 2 x 5 MHz of 800 MHz spectrum and 2 x 28 MHz of 3.5 GHz spectrum.

It is one of South Africa’s first converged communications network operator. It provides a range of value-added voice, internet and data services for businesses, wholesale network operators and providers and retail customers using its IP Next Generation Network, powered by Neotel’s fibre optic backbone.

It connects the major centres in South Africa to each other and to the world, directly linking its infrastructure into Tata Communications’ global tier I network.

The combination with Vodacom’s South African fixed enterprise business will create a national service provider with annual revenues of more than ZAR 5 billion ($482 million).

The transaction values Neotel at a multiple of 8.8x annualised H1 2014 OpFCF or operating free cash flow, adjusted for cost and capex synergies.

Speaking about the deal, Vodacom Group CEO Shameel Aziz Joosub, said that the transaction fits perfectly within the priorities of Vodacom’s growth strategy focused on continuing its investment in data and enterprise business.

(Edited by Joby Puthuparampil Johnson)

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