Vodacom to acquire Neotel from Tata for $676 million

South Africa’s Vodacom has announced plans to acquire Neotel from India’s Tata Communications for a cash fee of ZAR7 billion ($676 million).

The takeover will put the operator, owned by Vodafone (Newbury, UK), in control of South Africa’s second-biggest fixed-line network, allowing it to better compete in the market for unified communications products that combine fixed and mobile capabilities.

It says it plans to offer an expanded and enhanced range of converged services – such as hosted PBX – to enterprise customers.

Neotel (Johannesburg, South Africa) also holds valuable spectrum that Vodacom (Pretoria, South Africa) could use to speed up its deployment of 4G services.

Hoping to curry regulatory favour, and ensure the deal gets the backing of competition authorities, Vodacom said the combination of its network with Neotel’s would allow it to accelerate broadband connectivity “in line with the South African government’s broadband targets”.

Vodacom estimates the deal presents revenue synergies with a total net present value of ZAR0.9 billion, after integration costs.

It also expects to achieve substantial cost and capex synergies with an annual run rate of about ZAR300 million before integration costs in the full fifth year after the deal goes through.

It said savings would mainly be derived from the joint utilization of Neotel’s fiber network and the elimination of overlapping elements.

Vodacom said it would fund the acquisition through available cash resources and existing credit facilities.

Vodacom expects the deal to close by the end of the financial year but it could be held up by complaints from the operator’s rivals.

“Through the combination of these two businesses, the provision of a wider range of business services and much needed consumer services like fiber-to-the-business and fiber-to-the-home becomes a concrete reality – it will be good for the consumer, good for business and good for the country,” said Shameel Joosub, Vodacom’s chief executive.

“And for our investors, the transaction fits perfectly within the priorities of Vodacom’s growth strategy focused on continuing our investment in data and our enterprise business,” he added.