NEW DELHI--India's Tata Communications Ltd. on Monday said it
has sold its stake in South African telecommunications company
Neotel to an arm of Vodafone Group PLC.
Tata Communications currently owns 67% of Neotel, which provides
wholesale telecommunications and Internet services to companies in
Africa. The company didn't disclose the value of its stake. The
deal values the company at seven billion rand ($677 million),
according to a statement released by Tata.
Vodacom said it would fund the deal through cash and loans,
though the structure of the deal and its terms still needs
regulatory approval.
For Vodafone, the acquisition will strengthen its foothold in
South Africa--a global hot spot for telecommunications growth--by
adding high-paying, corporate customers to its existing cellular
subscribers. Vodafone currently has about 50 million users on its
network in South Africa, while Neotel has about 152,000 customers
in South Africa, which includes corporations with multiple accounts
and individuals.
The deal also gives Vodacom access to 15,000 kilometers, or
about 9,320 miles, of fiber-optic cables, including 8,000
kilometers of cables in South Africa's major cities including
Johannesburg, Durban and Cape Town. It likewise will give Vodacom
much-needed airwaves to roll out third-generation
telecommunications services. Fiber-optic cables help a
telecommunications operator transmit high-speed Internet
services.
Vodacom expects the deal to cut its cost and capital expenses in
South Africa, with annual savings of 300 million rand before
integration costs, five years after the deal closes.
The deal will be "good for the consumer, good for business and
good for the country," said Vodacom Group Chief Executive Shameel
Joosub.
Tata Communications and Vodacom began exclusive talks in
September, when footing the bill for Neotel's expansion into
services such as high-speed Internet and cellular networks started
getting expensive for Tata. These costs offset the 11% slice of
revenue Neotel contributed to Tata Communications' total.
Tata Communications will use deal proceeds to lower its debt
load, as the company had about 16.83 billion rupees of long-term
loans at the end of the last fiscal year.
Tata also needs cash to buy out the stake of NTT DoCoMo Inc. in
its Indian telecom venture Tata Teleservices Ltd. NTT DoCoMo,
Japan's biggest carrier, said in late April that it plans to exit
its entire 26.5% stake in the telecom venture by June, after five
years of losses amid telecom-license cancellations from a
corruption probe.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires