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Vodacom to pay R7bn for Neotel

Staff Writer
By Staff Writer, ITWeb
Johannesburg, 19 May 2014
Vodacom expects to use Neotel's spectrum to roll out long-term evolution services.
Vodacom expects to use Neotel's spectrum to roll out long-term evolution services.

Vodacom, SA's largest cellular operator, has agreed to pay R7 billion to buy out Neotel, bringing to an end months of negotiations that were officially kicked off at the end of September, when the listed company put paid to rumours it was keen on Neotel.

In a statement this morning, Vodacom said it was offering cash that was equivalent to an enterprise value of R7 billion for all of SA's second national operator, as well as any shareholder loans it has received. The group says adding Neotel to its fixed enterprise business will create a company that turns over more than R5 billion a year.

In the six months to September, Neotel turned over around R1.8 billion and reported earnings before interest, tax, depreciation and amortisation of R470 million. It invested R220 million in its network.

While Vodacom expects to close the deal before the end of next March, it will have to jump several regulatory hurdles, including getting Competition Commission approval, as well as the green light from the Independent Communications Authority of SA (ICASA).

Vodacom did not split out how much debt it was taking on, or how much Neotel's core business was worth, although speculation has put Neotel's debt as high as R5 billion, which would imply R2 billion as a valuation for the core business. Vodacom, which ended the year with R6 billion in the bank, says it will fund the deal through available cash resources and existing credit facilities.

Neotel, which started operations in 2007, is the second largest provider of fixed telecommunications services for businesses and consumers in South Africa, says Vodacom.

Fibre ambitions

Vodacom CEO Shameel Joosub says: "Through the combination of these two businesses, the provision of a wider range of business services and much needed consumer services like fibre-to-the-business and fibre-to-the-home becomes a concrete reality - it will be good for the consumer, good for business and good for the country.

"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."

Neotel has access to more than 15 000 km of fibre-optic cable, including 8 000 km of metro fibre in Johannesburg, Cape Town and Durban as well as two chunks of 12 MHz of space in the 1 800 MHz spectrum range, two units - each of five MHz - in the 800 MHz range, and two blocks of frequency in 3.5 GHz.

Merged assets

In a statement, the cellular group says it sees a "significant opportunity to accelerate growth in unified communications products and services by integrating its extensive distribution and marketing capabilities with Neotel's fixed network and product capabilities".

Once combined, the business will be able to offer an "expanded and enhanced range of converged services," such as hosted PBX, to enterprise customers. The merged businesses will also be able to enhance overall network availability and "reduce the cost to serve customers," says Vodacom.

"The combined business will also be ideally positioned to accelerate broadband connectivity in line with the South African government's broadband targets, enabling Vodacom to take a leading position in the fibre-to-the-home and fibre-to-the-enterprise segments of the market."

Vodacom says the combined entity will also be able to use Neotel's radio spectrum more effectively. It notes Neotel's spectrum will be used to roll out long-term evolution.

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