Vodacom, Tata Communications in Rs3,125 crore Neotel deal buzz [DNA : Daily News & Analysis (India)]
(DNA : Daily News & Analysis (India) Via Acquire Media NewsEdge) Mumbai: Vodacom, a subsidiary of Vodafone and South Africa's largest wireless operator, is learnt to have emerged as a strong contender for fixed-line and internet provider Neotel, majority owned by Tata Communications.
The company is in talks to acquire Neotel for over $500 million (Rs3,125 crore), Bloomberg reported on Friday.
Both Vodafone and Tata Communications declined comment, citing 'market speculation'.
What makes the development more surprising is that just last year, Tata Communications had increased its stake in Neotel by 2.5% for $14.9 million, taking its total holding in the company to 68.5%.
Including the stakes of Nexus Connexion and Communitel, which hold 19% and 12.5%, respectively, the total valuation of Neotel is $596 million.
This means Vodacom is offering around $100 million less for Neotel, not to mention the %5 million or so that Tata Communications has pumped in so far to fix the loss-making subsidiary.
For the year ended March 31, Neotel's net loss stood at $45.9 million despite positive earnings before interest, tax, depreciation and amortisation.
Could this mean that five years after the acquisitions, Tata Communications is giving up on Neotel, which was once expected to turn around its fortunes? And what's in it for Vodafone?
Globally, Vodafone has been increasing its focus on high net-worth enterprise customers - and thus investing heavily in data centres and data itself, as well as going back to fixed line/wired services to bring in more revenues for the operator amidst cut-throat competition and tariff wars for wireless services.
Currently, 27% of Vodafone's group service revenue comes from enterprise operations. For Vodacom, enterprise is 14% of service revenue.
Last year, Vodafone bought Cable and Wireless for £1.1 billion, giving it access to 20,500 km of fibre in the UK. It has also bought fixed-line operator TelstraClear for £400m and has bid for Kabel Deutschland, a German fixed-line telephony, cable TV and internet access service provider. Vodafone has also invested ?1 billion in co-building a fibre network in Portugal and Spain with Orange. Neotel's 8,000 km of metro fibre, access to a significant 12,000km-plus fibre backbone linking the major centres in South Africa, and access to a chunk of 800 MHz (two pairs of 5 MHz each) spectrum, which can be used for LTE - not to mention a huge number of enterprise customers - make it a lucrative buy for the recently cash-rich Vodafone, which sold its stake in US telecom major Verizon's wireless unit back to Verizon for $130 billion earlier this month.
As for Tata Communications, despite a lower valuation, it may finally become profitable again and concentrate better on its submarine cabling business, its bread-and-butter business, as well as other well-performing offerings like video conferencing, end-to-end managed services and new ventures like white-label ATMs.
Besides, the Africa business has not exactly been a bed of roses in recent times for most telcos - be it MTN, Airtel or Tata Communications. Vodafone, on the other hand, is the only operator in recent times to witness steady growth from its Africa business - whose enterprise revenues exceeded ?1 billion during the financial year ended March 2013.
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