Johannesburg - As Vodacom and Neotel returned their attention to mutual acquisition talks after surfacing briefly on Monday to confirm the corporate activity, analysts concluded that the purchase could do little to animate Vodacom’s nascent desire to expand on the continent.
Vodacom’s tentative takeover of Neotel is the first transaction of its kind for chief executive Shameel Joosub, who completed a year in the hot seat at Vodacom last month.
Joosub focused on organic growth almost immediately after he took over but has also set his sights on acquisitive expansion. In May he said Vodacom could operate from at least three new countries from the end of next year, Bloomberg news reported.
Neotel, whose parent company, India’s Tata Communications, operates in other African countries, is confined to South Africa although it offers some cross-border connectivity services to corporates via satellite.
According to Richard Hurst, a senior enterprise analyst at research firm Ovum, Vodacom’s buyout of Neotel, rumoured to be worth R5 billion, should be read in the context of recent acquisitions of large cable operators in the UK and in Germany by Vodafone, the majority shareholder in Vodacom, and Vodafone’s gain of a $130bn (R1.3 trillion) war chest for the sale of its 45 percent stake in Verizon Wireless to Verizon Communications.
Vodafone’s intentions to grow in emerging markets through its subsidiaries using the windfall was “actually becoming pretty evident” through Vodacom’s bid for Neotel, Hurst added.
However, “in terms of the rest of the continent, it doesn’t give Vodacom much of a leeway that it doesn’t already have.”
Vodacom and Neotel are in exclusive talks and still require regulatory and corporate approval for a transaction.
Together the companies are likely to challenge dominant fixed-line provider Telkom’s strong business services unit, in a manner that Neotel is unable to achieve on its own, injecting competition into local fixed telecoms.
The deal would also accelerate the provision of high speed data links and expand Vodacom’s product and customer choice, while providing access to Neotel’s much-needed spectrum.
Hurst said the possibility of the rejection of the deal by authorities and the integration and subsequent communication of this integration to the market presented risks. He added that there was, however, “more upside than downside” to the deal.
Frost & Sullivan Africa information and communications technology business unit leader Ian Duvenage said a misalignment in corporate values and focus could also lead to a potential derailment of the merger.
“Neotel has very recently turned earnings before interest and tax positive and has been in operation for quite a few years. It is critical that Vodacom realises the required return on investment, taking into account the additional investment necessary to broaden the Neotel network.
“The effective use of the spectrum that will become available to Vodacom, is also critical to ensuring the company builds a competitive advantage in the market,” Duvenage added.
Vodacom shares gained 1.57 percent to close at R126.40 on the JSE yesterday. - Business Report