"The shareholders of Neotel and Vodacom have announced that they have favourably concluded an agreement on the commercial structure and terms to proceed for Vodacom to acquire 100% of the shares of Neotel valued at an enterprise value of ZAR (South African Rand) 7.0 billion," Tata Communications said on Monday.
The sale of Neotel is expected to ease the debt burden on Tata Communication's balancesheet considerably. The company currently has a consolidated net debt of around R10, 307 crore and a core net debt (excluding debt of Neotel and other non-core businesses) of around R8,142 crore, as at the end of March 2014.
Vodacom will fund the acquisition through the available cash sources and existing credit facilities. The deal is, however, subject to regulatory and competition authority approvals, which Vodacom expects before the end of the current fiscal.
The net cash consideration that Tata Communications might be left with to pare its own debt would be net of the debt on the books of Neotel, which is around $467 million, as on 31 March.
In the March quarter, Tata Communications had taken a charge of R150 crore on account of impairment in Neotels goodwill that weighed down on the financial performance of the firm and resulted in a loss of R123 crore for that period.
Vinod Kumar, MD and CEO of Tata Communications said in a statement that the deal was in line with its financial objectives, while paving the way for Neotel to improve its value proposition in the South African market.
The present transaction has been on the cards for quite sometime as both companies had made their intentions of entering into exclusive talks for a due diligence exercise in September.
After the acquisition, Neotel will become a subsidiary of Vodacom South Africa, which combined with Vodacoms existing South African fixed enterprise business is set to create a national service provider with annual revenues of more than ZAR 5 billion, a statement issued by Vodacom said.
Vodacom sees a significant opportunity to accelerate growth in unified communications products and services by integrating its extensive distribution and marketing capabilities with Neotels fixed network and product capabilities, the statement said.
Vodacom said the combined business would be ideally positioned to accelerate broadband connectivity and enable Vodacom to take a leading position in the fibre-to-the-home and fibre-to-the-enterprise segments of the market.