Vodacom Group Ltd. (VOD), South Africa’s largest wireless operator, is set to enter exclusive negotiations to acquire Internet provider Neotel Pty Ltd., according to a person familiar with the discussions.
The Johannesburg-based carrier is in talks to buy Tata Communications Ltd. (TCOM)’s closely held South African unit for more than 5 billion rand ($502 million), the person said, asking not to be named because the negotiations are private.
Vodacom, which is 65 percent owned by Vodafone Group Plc (VOD), is increasingly focused on small- to medium-sized business customers and expanding data services to offset declining revenue from its domestic voice division. Neotel said in May that its corporate customer base rose 29 percent for the full year, driven by growth in managed and network services.
Mobile operators are turning increasingly to fixed-line assets that allow them to sell a wider range of services and carry data traffic more efficiently. This year Vodacom’s parent, Newbury, England-based Vodafone, bid 7.7 billion euros ($10.4 billion) for Kabel Deutschland, a German fixed-line telephony, cable TV and Internet-access service provider.
Telkom SA SOC Ltd. (TKG), Africa’s largest fixed-line operator, sees a trend of greater interest in fixed-line assets even though it hasn’t received an approach itself, Chief Executive Officer Sipho Maseko said today.
“To be in fixed is fantastic because data is not finite,” Maseko said at a media briefing in Johannesburg. “We’re about to enter a new era of telecoms, which is going to be around data growth, content and services. Sooner, rather than later, it’ll be good to be in fixed.”
Neotel spokeswoman Chuma Siswana declined to comment. Vodacom didn’t immediately respond to an e-mail seeking comment. Tata Communications spokeswoman Divya Andand didn’t respond to calls and an e-mail seeking comment on the matter.
Tata bought an additional 2.5 percent in Neotel, based in Johannesburg, for 922.4 million rupees ($14.9 million) in the previous year, according to its 2012-2013 annual report. That would value the company at $596 million.
Vodacom shares advanced as much as 2 percent, before falling 0.8 percent to 124.99 rand as of 4:30 p.m. in Johannesburg.
Tata’s consolidated net loss from its stake -- 67.32 percent as of March 31 -- in Neotel was $45.29 million, according to the document. Neotel’s full-year earnings before interest and taxes were positive for the first time.
Bloomberg News reported in May that Vodacom was interested in buying Neotel for its spectrum access. MTN Group Ltd. (MTN), Africa’s largest wireless operator, had also participated in discussions before dropping out of the process, MTN Chief Executive Officer Sifiso Dabengwa said last month.
Rand Merchant Bank is advising Neotel shareholders and Rothschild is advising Vodacom, according to two people familiar with the talks. A spokesman for Rothschild declined to comment, while a spokeswoman for Rand Merchant Bank didn’t immediately respond to an e-mail and text message seeking comment.
Neotel was founded in 2006 after winning a license to compete with former fixed-line monopoly Telkom, building a second phone network and offering voice and Internet services. Tata bought a majority stake in Neotel in 2008, according to a statement at the time.