Tata Communications to sell SA arm Neotel to Vodacom for $676 mn

Neotel, the South African subsidiary of Tata Telecommunications and Vodacom SA have reached an agreement on the commercial structure and terms to proceed for Vodacom to acquire 100-per cent stake in Neotel, valued at an enterprise value of 7 billion rand (around $676 million).

This follows the announcement late last year that the parties were entering into exclusive talks for a due diligence (See: Vodacom in talks to buy Tata's stake in South Africa's Neotel for $500 mn).

The structure of the deal and its commercial terms, approved by shareholders of Neotel and Vodacom SA, remain subject to regulatory and competition authority approvals and the parties will be immediately commencing the necessary processes in that regard, Tata Telecommunications said in a release.

Neotel, South Africa's second-biggest fixed-line phone operator, is 68.5 per cent owned by Tata Comm. It competes with former State-owned service provider Telkom.

''Tata Communications is pleased with the outcome of this deal. It is in line with our financial objectives while paving the way for Neotel to improve its value proposition in the South African market,'' Vinod Kumar, MD and CEO, Tata Communications said,

''We are encouraged at the progress made to date and will focus now on ensuring compliance with the regulatory approvals processes and the engagement with the competition authorities. 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, added.

The Tata group, which operates Tata DoCoMo in India in association with Japanese telecom major NTT DoCoMo, also needs cash to buy out DoCoMo's stake in its Indian telecom venture Tata Teleservices Ltd

NTT DoCoMo, Japan's biggest carrier, had, late in April, announced plans to offload its entire 26.5 per cent stake in the telecom venture by June, after five years of losses amid licence cancellations following a corruption probe(NTT DoCoMo to exit Tata Tele joint venture).

Vodafone said the acquisition will strengthen its foothold in South Africa - a global hot spot for telecommunications growth - by adding high-paying, corporate customers to its existing cellular subscribers. Vodafone currently has about 50 million users in South Africa, while Neotel has about 152,000 customers, which includes corporations with multiple accounts and individuals.

The deal also gives Vodacom access to 15,000 km, or about 9,320 miles, of fiber-optic cables, including 8,000 kilometers of cables in South Africa's major cities, including Johannesburg, Durban and Cape Town.

It will also give Vodacom much-needed airwaves to roll out third-generation telecommunications services using fiber-optic cables.

Vodacom expects the deal to cut its cost and capital expenses in South Africa, with annual savings of 300 million rand before integration costs, five years after the deal closes.