Vodacom Offer for Neotel Said to Include $500 Million Debt

Vodacom Group Ltd. (VOD)’s proposed takeover of Tata Communications Ltd. (TCOM)’s South Africa unit will include the assumption of about $500 million of debt, according to two people familiar with the negotiations.

South Africa’s largest wireless operator is in talks to buy the closely held Internet provider Neotel Pty Ltd. for the value of the debt plus an additional sum, said the people, asking not to be named because the talks are private. The deal could be valued as high as 10 billion rand ($994 million), according to one of the people.

Vodacom, which is 65 percent owned by Newbury, England-based Vodafone Group Plc (VOD), said yesterday it started exclusive talks to buy Neotel. The Johannesburg-based company 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.

“Excluding the wholesale carrier business, a Neotel deal would triple the size of Vodafone’s enterprise business in South Africa,” telecommunications analysts at the Lisbon-based brokerage Espirito Santo said in a research note today. “We expect similar deals to boost Vodafone’s fixed-line capability and also a continued push into enterprise fixed and mobile services globally.”

Regulatory Approval

Tata Communications spokeswoman Divya Anand declined to comment, saying the company wouldn’t discuss market speculation. Vodacom declined to comment in an e-mailed statement. Neotel spokeswoman Chuma Siswana didn’t immediately respond to e-mails seeking comment.

The price hinges on regulators approving the deal, according to UBS AG analyst Chris Grundberg.

“Would Vodacom be able to keep/use Neotel’s spectrum, particularly under the Vodacom brand?” Grundberg said in a note to clients. “What would be the regulatory/competition commission view of Vodacom buying a supplier to both MTN Group Ltd. (MTN) and Cell C?”

Vodacom shares were up 1.6 percent at 126.40 rand at the market close in Johannesburg, giving the company a market value of 188.1 billion rand.

Neotel was founded in 2006 after winning a license to compete with former fixed-line monopoly Telkom SA SOC Ltd. (TKG), building a second phone network and offering voice and Internet services. Tata Communications bought a majority stake in Neotel in 2008, according to a statement at the time.

To contact the reporter on this story: Chris 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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