R500m deal two years in the making

By Iain Scott, ITWeb group consulting editor

Johannesburg, 22 Jan 2004

Altech`s R500 million deal to set up a joint venture with Econet Wireless Group (EWG) has been almost two years in the making.

Altech CEO Craig Venter says his group first identified the telecommunications company as a high growth opportunity in 2002. Econet CEO Strive Masiyiwa says informal talks began in February that year.

Agreement between the two groups was delayed because of what Venter describes as irregular board activities at Econet Wireless Nigeria, of which EWG, through its wholly owned UK operation, Econet Wireless Limited (EWL), owns about 5%.

Masiyiwa says EWL and Econet Nigeria reached agreement in terms of which EWL would increase its shareholding to 33% for $150 million. However, the implementation of the agreement was interrupted when Vodacom made an alternative investment proposal to Econet Nigeria.

That matter is now the subject of international arbitration and Masiyiwa says he is confident that a ruling will be in his group`s favour.

Venter stresses that Altech is not involved in the matter and says Altech will consequently not bear the burden of any legal costs.

He says he discussed Altech`s Econet deal with Vodacom CEO Allan Knott-Craig seven months ago and that Altech`s "close and constructive" relationship with Vodacom will continue.

The deal sees the creation of a new company, Newco, in which EWG and Altech will each have a 50% stake. Econet`s holdings, which include its interests in Kenya, UK, Bermuda, Botswana, Nigeria, New Zealand and Lesotho, will be held by Newco.

Zimbabwe excluded

Venter says the assets of Econet Zimbabwe, including its 14% shareholding in Botswana-based Mascom, have been excluded from the deal for now.

He says while the Zimbabwean operation is very successful and profitable, given the political situation in the country, coupled with the fact that profits cannot be repatriated, Altech views an investment there as too risky.

However, Altech and EWG have negotiated first refusal rights should the Zimbabwean political climate improve.

"I have stated in the past that in order for Altech to continue to grow significantly, it would have to globalise," says Venter. He says the venture is a perfect fit within the group`s strategy as it is an ideal entry point for Altech into mobile network operations.

The deal also balances the telecommunications side of Altech with the rest of its businesses. The group sold its 40% stake in Alcatel Altech Telecoms in 2002.

The agreement also provides for preferred supplier status for companies in the broader Altron Group and Altech subsidiaries will benefit from substantial inter-group vendor supply opportunities.