Vodacom Enters Exclusive Discussions to Buy Tata’s Neotel

Vodacom Group Ltd. (VOD), South Africa’s largest wireless operator, said it started exclusive talks to buy Internet provider Neotel, a unit of Tata Communications Ltd. (TCOM)

“Vodacom intends to put significant investment into the combined entity to provide high-speed fixed connectivity to many more businesses and consumers,” Chief Executive Officer Shameel Joosub said in an e-mailed statement today. “We would also aim to develop entirely new services such as fiber to the home and business.”

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 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.

The Neotel deal could be worth more than 5 billion rand ($497 million), a person familiar with the discussions told Bloomberg News last week, asking not to be named because the negotiations are private.

Mobile Data Demand

Neotel’s spectrum is also a consideration for Vodacom as it could help the company keep up with demand for mobile data in South Africa, Joosub said in the statement.

Tata bought an additional 2.5 percent in Neotel, based in Johannesburg, for 922.4 million rupees ($14.7 million) in the previous year, according to its 2012-2013 annual report. That would value the company at about $589 million.

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.

Vodacom fell 1.2 percent to 124.45 rand by the close of trading in Johannesburg, giving it a market value of 185.2 billion rand.

To contact the reporter on this story: Christopher Spillane in Johannesburg at cspillane3@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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