Vodacom buying Neotel?

01-OCT-13

I think that Reuters broke the story Friday, but there was a confirmation yesterday that Vodacom were looking to buy Neotel yesterday. Or let me rephrase that, they are looking to buy. Because there are some issues with regards to the competitions authorities and those would need to be addressed, but I can see how the Vodacom hook up with Neotel would work. According to this article in MyBroadband: Vodacom-Neotel deal discussions confirmed, 15 thousand km's of fibre optic network, more than half of that in the Jozi, Cape Town and Durban areas. This would not be anti competitive, but rather could be seen as a direct challenge towards the fellows over at Telkom. Who seemingly are steering the ship in the right direction for now.


590 million Dollars is what Reuters is suggesting the price tag (nearly 6 billion Rand), that is just a little over three percent of the current Vodacom market capitalization, so this is hardly a massive deal for THEM. Why would the Neotel shareholders sell, if according to this Reuters piece, South Africa's Vodacom looks to boost data with Neotel purchase, that Tata have been upping their stake AND they have invested a whopping 7 billion Rand locally in infrastructure. Why? Have they been unable to gain the traction that they desperately were looking for? It is not the worst service in the world, nor is it the best service in the world, Neotel that is. We have personal experience, with our fixed lines (Telkom for bandwidth) being wireless essentially. The signals are good enough, and the service works. Plus if there is a problem, you phone a responsive human on the other side.

But why would the shareholders, the main ones, Tata (67 percent and a bit) sell at this point? Does the parent company need the money? Maybe.


Who are their other shareholders? Neotel that is? CommuniTel (who has MKhonto We Sizwe Military Veterans Association as a shareholder, as well as Telecom Namibia, the national operator in Namibia) at 12.5 percent and the balance, a little over 20 percent is owned by Nexus, which represents a whole host of members. And if you read the Reuters article, you will see that MTN was chatting to Neotel, but those talks had broken down.


Neotel's quarterly revenues are 80.6 million Dollars, multiply that by 4 and you get around 320 million Dollars. So the price of roughly 1.85 times annual revenue, is that expensive, especially if you can see that the revenue growth has been high teens. America Movil has a market cap to annual sales of 0.83 times. And that last purchase by Tata (valuing the company at 590 million Dollars) does not include a premium. I think that it would be a great deal for Vodacom, even at a 20 to 25 percent premium to the price now. Competitions authorities and how quickly can they pump their clients full of data, they certainly have the networks and the customers.