After many months of negotiation, Vodacom and Neotel are finally getting into bed with each other. Vodacom has reached an agreement with Neotel’s shareholders to buy 100% of the company, including shareholder loans against it, for a total cash consideration equivalent to an enterprise value of R7bn.

The deal, if it gets the necessary regulatory approval, will give Vodacom access to Neotel’s 15 000km of fibre-optic cable, including 8 000km of metropolitan fibre in Johannesburg, Cape Town and Durban. Neotel also has access to 2x12MHz of spectrum in the 1,8GHz band as well as 2x5MHz at 800MHz and 2x28MHz at 3,5GHz.

It’s not immediately clear if communications regulator Icasa has given the go-ahead for the transfer of Neotel’s spectrum.

“Neotel will become a subsidiary of Vodacom South Africa and the combination with Vodacom’s South African fixed enterprise business will create a national service provider with annual revenues of more than R5bn,” Vodacom said in a statement on Monday.

“Vodacom sees a significant opportunity to accelerate growth in unified communications products and services by integrating its extensive distribution and marketing capabilities with Neotel’s fixed network and product capabilities,” it said. “The combined entity will be able to offer an expanded and enhanced range of converged services (hosted PBX, OneNet) to enterprise customers. Vodacom estimates revenue synergies with a total net present value of approximately R0,9bn after integration costs.”

Vodacom said that the combined business would be “ideally positioned to accelerate broadband connectivity, in line with government’s broadband targets, enabling Vodacom to take a leading position in the fibre-to-the-home and fibre-to-the-enterprise segments of the market.

“The combined entity will also be able to use the radio spectrum currently assigned to Neotel more effectively. This spectrum will enable Vodacom to accelerate the roll-out of LTE (commonly referred to as 4G) services, providing high-speed, high-quality wireless connectivity to a greater proportion of the South African population.”

In addition, Vodacom said it expects to achieve “substantial cost and capex synergies with an annual run-rate of approximately R300m before integration costs in the full fifth year post completion, equivalent to a net present value of approximately R1,5bn after integration costs”.

“These savings will primarily be derived from the joint utilisation of Neotel’s extensive fibre network and the elimination of overlapping elements, joint procurement and the combination of overlapping administrative functions.”

Vodacom will fund the acquisition through available cash resources and existing credit facilities.

In the statement, Vodacom CEO Shameel Joosub said: “Through the combination of these two businesses, the provision of a wider range of business services and much needed consumer services like fibre to the business and fibre to the home becomes a concrete reality — it will be good for the consumer, good for business and good for the country. And for our investors, the transaction fits perfectly within the priorities of Vodacom’s growth strategy focused on continuing our investment in data and our enterprise business.” — (c) 2014 NewsCentral Media