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Vodacom's acquisition of Neotel indicative of industry consolidation

Vodacom's acquisition of Neotel indicative of industry consolidation

21st May 2014


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The acquisition by mobile operator Vodacom of unlisted telecommunications company Neotel in a cash transaction worth R7 billion is indicative of ongoing consolidation in the industry.

That’s according to Lloyd Chater, Director at pan-African corporate law firm Bowman Gilfillan, which advised Tata Communications on the transaction.

“South Africa’s telecommunications industry is in a state of flux. The market is maturing and the Vodacom and Neotel transaction is indicative of the trend towards greater levels of consolidation.”

Neotel is South Africa's second-biggest fixed-line phone operator and is majority-owned by India's Tata Communications.

“We advised Tata Communications, which is selling its shareholding in Neotel to Vodacom, partly through a scheme of arrangement. Bowman Gilfillan has advised in relation to all aspects of the transaction, including capital market merger, telecommunications, corporate, financing and other aspects.

Neotel started operations in 2007 and has access to over 15 000km of fibre-optic cable, including 8 000km of metro fibre in Johannesburg, Cape Town and Durban, giving Vodacom a large fibre optic network for high-speed Internet.

Vodacom said Neotel would become a subsidiary of Vodacom South Africa and the combination with Vodacom’s fixed enterprise business (fixed telecommunications services for business) would create a national service provider with annual revenues of over R5bn.

Vodacom saw an opportunity to accelerate growth in unified communications products and services by integrating its distribution and marketing capabilities with Neotel’s fixed network and product capabilities. The combined entity will be able to offer an enhanced range of converged services to enterprise customers.

It is also expected that the combined network will improve network availability and reduce the cost to serve customers. The combined business will be ideally positioned to accelerate broadband connectivity in line with the Government’s broadband targets, enabling Vodacom to take a leading position in the fibre to the home and fibre to the enterprise segments.

The transaction is subject to the fulfillment of a number of conditions, including regulatory approvals.

Bowman Gilfillan Partner and head of the firm’s corporate and M&A department, Ezra Davids, commented: “Bowman Gilfillan deployed lawyers representing a wide range of specialist skills to assist with this transaction, again demonstrating our ability as a firm to harness resources in an efficient way to get the job done in M&A or equity capital markets.”



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