Vodacom’s share price shot up by more than 4% on Wednesday morning. The strong performance followed news on Tuesday evening that the Competition Commission has decided to recommend the approval of the mobile operator’s acquisition of Neotel, albeit with stringent conditions attached.
Shortly after 10am on Wednesday, Vodacom’s share price was trading at R144,69, up by 4,3% on the session, but off the morning’s best level of R145,52.
TechCentral reported on Wednesday that the Competition Commission has decided to approve Vodacom’s all-cash, R7bn bid to buy Neotel, but that it has imposed a number of conditions, including a prohibition on the use of Neotel’s spectrum until as late as December 2017.
Vodacom is also required to invest R10bn in fixed-line infrastructure in the next five years and ensure it meets black economic empowerment criteria.
The commission found that the proposed transaction is likely to substantially lessen or prevent competition in the mobile services market, hence the stringent conditions.
Vodacom has agreed to the conditions imposed.
“Vodacom is the market leader in mobile services markets and the additional spectrum from Neotel will result in spectrum concentration effects that will likely consolidate Vodacom’s dominant position,” the commission said in a statement. “The acquisition will confer first-mover advantages to Vodacom relating to network speed, capacity and mobile offerings.
“Vodacom will not be constrained by other competitors as they are unlikely to match its offering. These factors taken together will likely lead to reduced choice and higher prices to end customers in the absence of effective constraints on Vodacom.”
In terms of the agreement, Vodacom will not directly or indirectly use Neotel’s spectrum for offering wholesale or retail mobile services to any of its customers for a period of two years from the approval date or 31 December 2017, whichever is earlier.
“The two-year deferment period is intended to give an opportunity to policy makers to address the spectrum challenges in the industry,” the commission said.
Furthermore, Vodacom will, within a period of 24 months following the approval date of the deal, ensure that the value of shares in its share capital held by black economic empowerment shareholders increases by an amount of R1,4bn. That’s the value attributable to Neotel in terms of the merger multiplied by 19% (being the current empowerment shareholders’ direct shareholding in Neotel).
Vodacom must also not retrench any of Neotel’s employees as a result of the merger. — (c) 2015 NewsCentral Media