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Vodacom Agrees Acquisition of Gateway Telecommunications for US$675 mil.

Published: 8/29/2008
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Vodacom, one of the largest pan-African mobile operators, has announced that it has agreed to acquire the carrier services and business network solutions subsidiaries of Gateway Telecommunications SA (Pty) Ltd.

Global Insight Perspective

 

Significance

The transaction will see Vodacom acquire Gateway for an enterprise value of US$675 million plus a make-whole payment of approximately US$25 million in relation to Gateway's high-yield bond.

Implications

For Vodacom, the acquisition provides the operator with the platform to expand and re-position itself as a leading pan-African provider of total communications services. For Gateway, the deal allows it to increase its investment as a pan-African service provider.

Outlook

This deal comes at a time of consolidation in the African telecoms market, with other leading operators making major acquisitions in order to combine resources to deliver increased scale and efficiencies, and to offer a wider range of services in converging markets.

According to a company press release by Vodacom today (29 August), the acquisition will see subsidiaries nominated by Vodacom Group (Pty) Ltd purchase 100% of the shares in Gateway Telecommunications (Plc), Gateway Communications (Pty) Ltd, Gateway Communications Mozambique LDA, Gateway Communications (Tanzania) Ltd, GS Telecom (Pty) Ltd and their respective subsidiaries. The transaction remains subject to approval from the South African Reserve Bank, as well as regulatory and competition authorities.

Gateway has grown over the last five years to become the leading provider of pan-African connectivity to mobile networks and multi-national corporations. During 2002, the operator—then called Gateway IP—merged with South African VANS operator FirstNet to become Gateway Communications (see Sub-Saharan Africa: 22 October 2002: Gateway IP and FirstNet Merge to Form Gateway Communications). During 2005, Gateway then acquired Link Africa, the international satellite service provider previously owned by regional mobile operator Celtel (see Sub-Saharan Africa: 26 April 2005: Gateway Communications Acquires Link Africa from Celtel for US$50 mil.). Last year Gateway acquired GS Telecom for US$37.5 million, raising US$115 million from the European high yield bond market in November 2006 and a further US$32.5 million in May 2007 to finance the acquisition (see Sub-Saharan Africa: 10 May 2007: Gateway Communications to Acquire GS Telecom for US$37.5 mil.).

The transaction notably does not include Gateway Broadcasting Services, which will be retained by its current owners. It launched a pan-African pay-TV service in June 2007 called GTV and the satellite-based, direct-to-home (DTH) service is currently undergoing a phased roll-out across sub-Saharan Africa (see Sub-Saharan Africa: 27 February 2007: Gateway to Launch Pan-African Pay-TV Service).

Gateway will continue to be an independently managed company, run by the existing management and staff, including responsibility for customer service, product development and the day-to-day running of the business in all respects, with no change to the company name, brand and products. The operator added that the deal will allow Gateway to increase investment across Africa. "This is another exciting milestone in Gateway’s development as a unique pan-African service provider,’ said Peter Gbedemah, the chief executive of Gateway Communications, adding, "We will increase resources, efficiency, product range and continue our relentless focus on meeting the requirements of all Africa’s mobile networks and multi-national corporations."

Outlook and Implications

Vodacom said that the acquisition of Gateway has a compelling strategic rationale and is a significant opportunity in line with its growth strategy. In its annual report, Vodacom said, "We will nurture and grow our traditional mobile telephony business in five countries of operation, while entering the wider world of providing convergence infrastructure and services" (see Sub-Saharan Africa: 9 June 2008: Vodacom Reports 17.1% Annual Revenue Increase to US$6.15 bil.).

"Gateway Communications provides a unique opportunity to expand as a pan-African total communications provider," said Pieter Uys, the chief executive designate of Vodacom, in a company press release, adding, "The acquisition of Gateway reflects Vodacom's strategy to reposition itself as a leading pan-African provider of communications services and to diversify from its current status as primarily a mobile-centric network operator. We believe that Gateway's significant presence across Africa will allow Vodacom to tap into the huge potential for growth in business services and connectivity, and will enhance our position with multinational corporations."

Vodacom said that the transaction would allow the operator to accelerate its international expansion and broaden its international presence in key markets throughout Africa, especially Nigeria—a market that it has been looking to enter for some time. In South Africa, the deal will complement Vodacom's business services strategy and allow the roll-out of existing products and services in addition to new offerings across the continent. It will position Vodacom as partner of choice for multinational customers and international telecommunications providers seeking African connectivity, and access to Gateway's blue-chip customer base will enable the marketing of converged fixed and mobile offerings across Africa.

This transaction comes during a period of major consolidation in the African telecoms market as leading operators look to expand their geographical presence and move into the converging telecoms markets. Gateway said that as consolidation in the African telecoms market continues, leading players are combining resources to deliver increased scale, efficiency and customer choice. Other recently concluded deals include:

  • Allied Technologies Ltd (Altech), the South African conglomerate, acquired controlling 51% stakes in Kenya Data Networks, Swift Global (Tanzania), and Infocom (Uganda) from Sameer ICT Ltd for US$85.2 million (see Sub-Saharan Africa: 5 March 2008: Altech Expands Footprint into East Africa through Acquisition).
  • Telkom SA acquired pan-African ISP Africa Online in February 2007 for US$20.3 million, expanding its presence into nine African countries, and also acquired a controlling 75% stake in Nigerian operator Multi-links Telecommunications Ltd for US$280 million (see Sub-Saharan Africa: 26 February 2007: Telkom Announces Acquisition of Africa Online and Nigeria: 23 March 2007: Telkom Acquires 75% Stake in Multi-links).
  • MWeb Africa, a subsidiary of the South African conglomerate Naspers, acquired Afsat Communications last year (see Sub-Saharan Africa: 18 October 2007: MWeb Africa Acquires Afsat Communications). MWeb is the largest South African ISP, with 350,000 dial-up and broadband subscribers, and MWeb Africa has subsidiaries in Namibia, Nigeria, and Zimbabwe. Afsat is a multinational ISP serving the corporate and residential market, primarily with satellite-based broadband services, provides services in 26 countries across Africa and operates more than 4,000 VSATs.
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