Neotel agrees to US$680 million valuation from Vodacom

Vodacom, the largest mobile operator in South Africa, reached an agreement with shareholders of Neotel – the second-largest provider of fixed-line services in the country – to take full ownership of the firm. The accepted offer gives Neotel an enterprise value (which includes debt) of ZAR7 billion (US$680 million).

Negotiations have been ongoing since last September, but the deal still needs regulatory approval before it can go ahead.

Vodacom, 65 per cent owned by Vodafone, agreed a cash payment to purchase Neotel.

India’s Tata Communications, which holds 66.5 per cent equity in the South African fixed-line provider, welcomed the terms of the arrangement.

Neotel has access to 2x12MHz at 1.8MHz; 2x5MHz at 800MHz; and 2x28MHz at 3.5GHz spectrum. Vodacom says the extra wireless frequencies will enable it to accelerate LTE rollout.

Vodacom expects to achieve cost and capex synergies with an annual run-rate of approximately ZAR300 million before integration costs in the full fifth year post completion (equivalent to a net present value of approximately ZAR1.5 billion after integration costs).

The savings are expected to come primarily from the joint utilisation of Neotel’s fibre network, the elimination of overlapping elements, joint procurement, and the combination of overlapping administrative functions.

Vodacom said it expects to close the deal before the end of its financial year (March 31, 2015).