Category: BRICS

Minister’s grip over antitrust authorities further strengthened

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South Africa takes on more price regulation in planned amendment to Competition Act

BDLive’s Carol Paton reports that Economic Development Minister Ebrahim Patel – with whose involvement in competition policy AAT readers are well aware from reading our site – has further strengthened his grip on the country’s competition authorities.  He is said to be drafting amendments to the Competition Act in relation to dominant firms’ “excessive pricing” practices.  The amendments are to be introduced to Parliament in 2015.
The article quotes Mr. Patel’s Sunday interview, in which he said:

“The past five years indicated that we are serious about dealing with cartels. But the challenge that we have had is that the economy still has many formal monopolies or upstream producers who are able to impose high prices on downstream manufacturers. We have got to move with greater urgency to tackle the structural challenges.  Giving a dominant player the right to set its own price results is an unfairness. In the Sasol example, part of the remedy is for the firm to work with the competition authorities to develop a soft version of price regulation.”

Price regulation is an absolute taboo in U.S. antitrust law, and even under more interventionist and public-policy influenced EU standards, explicit price regulation is not practiced in the bloc’s 28 member states.
Sasol, the giant South African oil company, is said to be aware of the government’s plans, saying: “setting prices, in particular of traded goods, invariably leads to unsatisfactory outcomes.  South Africa’s joining the World Trade Organisation in 1995 took us forward to opening the economy to compete internationally, with prices being brought in line with international prices. Regulating prices to below gate price, is unlikely to lead to building long-term competitive industries.”

Costly COMESA courthouse, ZA investigates Visa provider & holds ground on Sasol fine

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south_africa

Lots AAT news this Monday, from Sudan/COMESA to South Africa

Visa facilitator backed by one branch of government & investigated by another

In substantive antitrust news, the South African Competition Commission is reported to be investigating alleged abuses of market dominance by VFS Global in the visa support services market to foreign embassies.

VFS is a worldwide outsourcing and technology services specialist for diplomatic missions and governments.

The firm has now drawn the potential ire of the Commission, as it is now apparently the only outlet for foreigners to apply for South African visas and work permits, as well as for South African citizens to obtain entry visas for multiple countries abroad.

The irony here that we at AAT perceive is that the monopoly position of VFS appears to be based on the new immigration regulations imposed by the ZA government itself (notably the Department of Home Affairs) earlier in 2014: According to a report, the company had recently opened the doors of its multiple offices across the country — “The Pretoria (Gauteng), Rustenburg (North West) and Kimberley (Northern Cape) centres were the first to open on Monday, 2 June. It is envisaged that the last office will be opened on 23 June.”

The investigation – to be confirmed by the Commission this week, as it potentially launches a full-on formal inquest – was purportedly initiated by a competitor complaint from company Visa Request, claiming damage to its competing business flowing from the governmentally-imposed dominant position of VFS’s (allegedly pricier) services…

Commission stays course on Sasol

In more ZA news, Competition Commissioner Tembinkosi Bonakele is staying the agency’s strong course on the excessive-pricing fine imposed on Sasol, which is said to be appealing its R543 fine that had been upheld by the country’s Competition Tribunal, and which Commissioner Bonakele thinks “should be bigger”…

In our prior AAT reporting on the Sasol abuse-of-dominance case we said:

The S.A. Competition Tribunal is hearing the excessive-pricing portion (which was not settled) of the Commission‘s claims against the refining & steel giant this month.  The relevant legal underpinning of the case is the provision against excessive pricing by a dominant firm.  Precedent has declared prices excessive that “bear no reasonable relation to the economic value of the good or service” at issue.  Pheeew.  Facts.  Economics.  Nice.  Looks like a coming battle of the experts to me…

By comparison, in the U.S., antitrust law of course does not forbid “excessive pricing.”  While setting and reaping apparently high prices may be indicative of monopoly power, such acts are not in themselves anti-competitive or illegal in the States.  In Verizon v. Trinko, the U.S. Supreme Court held famously that:

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.

Interestingly, there is a notable history of failures in the area of ‘excessive pricing’ complaints in South Africa, as well, despite the statutory legitimisation of the cause of action.  In the prior ArcelorMittal and Telkom cases, the Commission and/or Tribunal lost in the end, either at trial or on appeal to the Competition Appeal Court.  That Court had found, in the ArcelorMittal case, that the antitrust watchdogs could not use the ‘excessive pricing’ provision of the statute to combat perceived anti-competitiveness in the “market structure rather than price level.”

Today, Bonakele is quoted as follows:

“These are different times.  I can promise you this matter is not going to disappear. Sasol is out of touch if it believes it can win the matter on the basis of technical legal arguments. This issue has to be resolved either through competition law or through government policy.

The issue in this case is fundamental to the development of our economy. We are dealing with resources that should be available to promote that development. The government plays an important role in the country’s industrialisation, and I believe it will be very interested in the progress of this case.”

COMESA’s costly courthouse

While the COMESA organisation has had trouble in the virtual world this year, its real-world endavours appear to be prospering: Its shiny new courthouse, built to the tune of over $4 million (equivalent to only 8 merger filing fees), has opened its doors.  The country’s Minister of Justice, Mohamed Bushara Dosa, last week handed over to the COMESA Secretariat-general the Khartoum-based court premises.

The court will notably hear antitrust and merger cases that are appealed from the organisation’s Competition Commission.

 

https://i0.wp.com/news.sudanvisiondaily.com/media/images/29d17065-0634-951e.jpg
The glimmering COMESA court house in Sudan, built to the tune of $4.1 million

Second market inquiry focuses on energy sector (LPG)

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south_africa

“Highly regulated” liquefied petroleum gas at center of second sectoral Commission inquiry

According to the South African Competition Commission, the agency has issued “Terms of Reference for the market inquiry into the Liquefied Petroleum Gas sector”:

The Commission has today issued the Terms of Reference (ToR) for the LPG market inquiry. The ToR formally launches and outlines the scope of the inquiry.
The Commission is initiating the inquiry because it has reason to believe that there may be features of the sector that prevent, distort or restrict competition. The Commission hopes that the inquiry will assist in understanding the state of competition in the LPG sector.

It comes on the heels of the first market inquiry into private healthcare, on which AAT has reported extensively.

The full Terms of Reference are available online here.  The market inquiry is expected to begin this month and is expected to be completed by October 2015.

According to the Terms of Reference, the objectives of the market inquiry include:

  • Analyzing the current regulatory pricing framework with the aim of determining whether regulation could be improved in order to limit the exercise of substantial market power by market participants;
  • Examining whether the supply bottlenecks in the liquefied petroleum gas industry may serve to create circumstances or incentives that serve to distort, prevent or lessen competition;
  • Determining whether features currently prevalent in the market increase costs of switching to a prohibitive level when customers seek to switch between resellers of liquefied petroleum gas;
  • Assessing the extent of the barriers to entry and general competition dynamics at various levels of the supply chain within the industry; and
  • Making recommendations that may serve to improve the state of competition.

The Commission has identified the participants in the market inquiry process as including business enterprises within the liquefied petroleum gas chain, such as manufacturers, wholesalers, distributors and retailers, other related enterprises, end-users, government departments, public entities, regulatory authorities, industry associations and any other stakeholders that may be able to provide information relevant to the market inquiry.

BDLive reports that approximately “300,000 tons of LPG is manufactured in SA annually, generating turnover of about R1.5bn. Six refineries, Sapref, Sasol Synfuels, PetroSA Synfuels, Enref, Chevref and Natref produce and supply LPG.

Major resellers such as Afrox, Easigas, BPSA and Total Gas distribute it bulk or in a repackaged form. Afrox, Easigas and Sapref also imported at least 6,100 tons of LPG through facilities in Richards Bay, Port Elizabeth and Durban.”

How the bourgeoisie hijacks antitrust: Justice Minister’s dubitable remarks

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south_africa

“Bourgeoisie” in the people’s interest?

South African justice ministry’s highest-ranking member calls for strengthened competition enforcement against “monopoly pricing” and creation of “black bourgeoisie”

In an apparently rambling discourse, covering a vast swathe of subject-matter, South Africa‘s Justice Minister Jeff Radebe has been quoted as calling not only for the dismantling of the “over-concentrated” economy “in the hands of a few large companies,” but also for the creation of a “black bourgeoisie,” purportedly to counter-act the remaining racial imbalance in the country’s economic structure, according to an article in the South African Times Live:

On promoting competition in the economy, Radebe said the Competition Act would be strengthened to prevent monopoly pricing of goods such as steel and heavy chemicals.

This would make local manufacturing more competitive, and support infrastructure investment.

“The competition authorities will be further developed to act against cartels and ensure public interests are adequately protected in mergers and acquisitions.”

… Radebe was heckled from opposition benches when he said the emphasis would be on “creating black industrialists in productive sectors of the economy, and developing a patriotic black bourgeoisie”.

He broke from his prepared speech and asked, to laughter: “Why should it only be white bourgeoisie?“

Is a “bourgeoisie” reconcilable with populist politics (and competition law)?

One cannot help but wonder what the connection between the elimination of the so-called “white bourgeoisie” and the reduction of “over-concentration” in the economy may be, if any.

Moreover, AAT respectfully expresses its doubt whether creating a “bourgeoisie” — any bourgeoisie (wholly regardless of its race) — is in the general population’s interests, as the Minister seems to think (“It is a people’s plan which has been adopted by the majority of our people and stakeholders. We are therefore calling on all South Africans to rally behind the implementation of the plan, including labour, business and civil society”).  As another article on the topic points out,

In Marxist philosophy, the term bourgeoisie denotes the social class who owns the means of production and whose societal concerns are the value of property and the preservation of capital, in order to ensure the perpetuation of their economic supremacy in society.

The prototypical bourgeois: Molière’s Monsieur Jourdain, the protagonist of the play Le Bourgeois gentilhomme (1670)
Radebe’s vision of a better & more competitive society? Replace Monsieur Jourdain with a new version of Sandton’s bourgeoisie?
Antitrust plan unclear

How the SA antitrust watchdogs (the Competition Commission and the Competition Tribunal) were going to be “further developed” – structurally, scope/jurisdictionally, personnel-based or otherwise – was not immediately clear.

The remarks were part of the minister’s statement in the parliamentary opening debate on the president’s state-of-the-nation address.

Justice Minister Jeff Radebe (Image via Times Live, by: SYDNEY SESHIBEDI)

Appellate competition body questions authority’s lenient fine

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south_africa

Tribunal expresses doubts as to lenient fining level of Premier Fishing

The chairman of the South African Competition Tribunal, Takalani Madima, has asked the South African Competition Commission and Premier Fishing for ‘detailed substantial submissions’ on the settlement agreement reached between them, which lets the fishing company “off the hook” for an administrative penalty of a mere R2.1m (or 2% of its revenues).

2% fine not sufficient deterrent to anti-competitive conduct

According to a BDlive report, Mr. Madima is quoted as saying: ‘I am personally not too happy (with the agreement). I am still to be persuaded.’

The underlying conduct involves a cartel between Premier Fishing and others, in which the competitors shared information and pricing regarding the pelagic fish industry.  The Commission’s July 2008 investigation included the following companies as targets: Oceana, Foodcorp (note: the two former cartelists recently decided to merge and the competition authorities imposed conditions on the planned transaction), Premier Fishing, Gansbaai Marine, the SA Pelagic Fish Processors Association, Pioneer Fishing, Saldanha Bay Canning and others.

As the leniency applicant, Pioneer Fishing obtained full immunity from prosecution.  Others, such as Oceana, settled for approximately 5% of their fishing turnover.

Commission details plans for private healthcare sector inquiry

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south_africa

Further details revealed by inquiry panel

On Friday, subsequent to outlining the time table of the project, the South African Competition Commission Competition Commission released important frameworks for its sectoral inquiry into the competitiveness of the private healthcare sector in the RSA. The key documents are a draft “statement of issues” (which the Commission warned may further “evolve” during the course of the inquiry) and “guidelines for participation” for the market inquiry into the private healthcare sector, which is headed by retired Chief Justice Sandile Ngcobo. The public and affected stakeholders are invited to make written submissions on these before Monday, 30 June 2014 (South African Competition Commission direct e-mail address: health@compcom.co.za).

Notably, the statement of issues includes the role of the public sector in competition in the market for healthcare. This was a key sticking point for observers and stakeholders, as the initial framing of the inquiry appeared solely focused on the private players, failing to take into account the competitive restraints imposed by the strong public insurance schemes and other state-related participants in the healthcare arena.  (AAT published on this and related issues here and here.)

Other topics include, predictably from an antitrust point of view, regulation, market power and dominance, barriers to entry, as well as consumer-protection aspects. Taken together, the areas of concern have been grouped by the Commission’s inquiry panel into six possible theories of harm, which the Commission defines as follows: “A theory of harm refers simply to a hypothesis about how harm to competition might arise in a market to the detriment of consumers and to the detriment of efficient and innovative outcomes in that market.” (Statement of Issues at para. 9 and 53, as follows):

  1. Theory of harm 1: Market power and distortions in healthcare
    financing.
  2. Theory of harm 2: Market power and distortions in relation to
    healthcare facilities.
  3. Theory of harm 3: Market power and distortions in relation to
    healthcare practitioners.
  4. Theory of harm 4: Barriers to entry and expansion at various levels
    of the healthcare value chain.
  5. Theory of harm 5: Imperfect information.
  6. Theory of harm 6: Regulatory framework.

Battle of the Agencies: ICASA vs. CompCom

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In dispute over competition-law & merger enforcement in South Africa, Communications agency raises its voice

Jurisdictionally crossed wires and agency disputes in antitrust are no longer the exclusive playground of the FCC and DOJ, of COMESA’s CCC and the Kenyan CAK, or DOJ and FTC.  They have now reached the shores of the Republic of South Africa as well, in the form of the Independent Communication Authority of South Africa (“ICASA”) challenging the country’s Competition Commission’s de facto exclusive right to review merger deals.

Factual Background

ICASA, created in July 2000 by the Independent Communication Authority of South Africa Amendment Act is reported to be in a jurisdictional dispute with the country’s traditional merger watchdog, the South African Competition Commission (“SACC”).  ICASA wants the power to take a closer look at relevant deals such as MTN and Telkom’s network sharing and the announced Vodacom / Neotel deal, on which AAT has reported previously (see Telecom adversaries to remain “principled” in their competing bids for 4G spectrum, Internet & mobile operators at war: merge, acquire, complain, and our prior reports mentioning ICASA here).

ICASA’s specialized “Markets & Competition” division is tasked to deal with promoting “competition, innovation and investment in respect of services and facilities provided in the electronic communications, broadcasting and postal sectors, whilst ensuring account cultural diversity, especially regarding broadcasting content.”  The authority as a whole is “mandated to create competition in the telecommunications, broadcasting and the postal industries. In turn, competition brings about affordable prices for goods and services rendered and provides value for money to consumers.”

Legal Standard – “Public Interest”?

In recent reports by the New Telegraph and HumanIPO, ICASA is said to have voiced discontent with the Competition Commission’s failure to send proposed communications-related M&A deals to the authority.

That said, it is unclear to AAT precisely which legal standard ICASA wishes to impose on any potential future merger review it might undertake.  In the U.S., notably, the FCC’s standard of review is a more flexible public-interest standard, vs. the “classic” antitrust agencies’ (FTC/DOJ) “substantial lessening of competition” standard.

Regardless of (at least our) uncertainty of the legal standard to be applied, ICASA is quoted as saying that deals cleared by the SACC may still require separate approval from the Communications authority, irrespective of any competition-law based decision reached by the Competition Commission:

“While consolidation is a global phenomenon and anticipated in the market, all such deals may require regulatory approval.”

“The authority is aware of what is currently before the Competition Commission; and in accordance with our institutional arrangements with the Competition Commission we will collaborate, however, that in no way negates the regulatory approvals required from ICASA.”

In addition to the previous lack of coordination between the Commission and ICASA on merger reviews, there has also been criticism of the country’s limited allocation of more frequency spectrum to wireless operators.

south_africa

 

Private Health-Care Sector Inquiry: Time Table & Details

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south_africa

Inquiry panel’s head details logistics

On 16 April 2014, the South African Competition Commission held a media briefing, in which the administrative guidelines, the administrative timetable and statement of issues for the inquiry were announced.  AAT previously reported on the health-care sector investigation here.

Addressing the media and other stakeholders at the briefing, the chairperson of the inquiry, former Chief Justice Sandile Ngcobo, provided a brief explanation of what a market inquiry is, provided an overview of its possible outcomes, the Competition Commission and panel’s approach, the use of information during the inquiry and the management of confidential information.

Furthermore, the former Chief Justice elaborated on the important dates and timelines of the inquiry, the statement of issues, theories of harm and that stakeholders ought to provide accurate information in order to assist the panel.

The important dates are:

Date Event
31 May Statement of Issues and Administrative Guidelines issues for public comment
30 June Deadline for submission of public comment on Statement of Issues and Administrative Guidelines
1 July – 31 July Incorporation of comments on Statement of Issues and Administrative Guidelines
01 August Publication of final Statement of Issues and Administrative Guidelines
01 August Call for submissions on subject matter of the inquiry
March and April 2015 Public hearings
November 2015 Forecasted completion of the inquiry

Criminalisation of antitrust offences: not on short-term horizon

Posted on by andreasstargard

south_africa

Competition Commission not ready to pursue antitrust cases criminally – plus: AAT‘s recommendations

The newly (permanently) appointed Competition Commissioner, Tembinkosi Bonakele, has referred to a “phased” implementation of the 2009 Competition Amendment Act.  The legislation technically criminalised hard-core antitrust offences such as bid-rigging or price-fixing cartels.  However, it has not yet been implemented or effectively signed into law.

According to a MoneyWeb/ZA report, both he and his boss, Economic Development Minister Ebrahim Patel, had discussions on how and when to implement “to ensure that the necessary institutional capacity is available to apply the amendments.”  The initially effective provisions (relating to the SACC’s market-inquiry powers) went into effect last year, while the criminalisation provisions remain unimplemented.

In a somewhat remarkable and prudent self-assessment, the minister and SACC have now admitted that the Commission currently lacks “the institutional capacity needed to comply with the higher burden of proof in criminal cases,” according to the report.

One notable aspect of potential discord lies in not only in the different standard of proof in civil vs. criminal matters (“more probable than not” vs. “beyond a reasonable doubt”), but perhaps more importantly can be found on the procedural side, preventing rapid implementation of the law: There has been historic friction between various elements of the RSA’s police forces and (special) prosecutorial services, and the power to prosecute crimes notably remains within the hands of the National Prosecuting Authority, supported in its investigations by the South African Police Service.

Historical and Legislative Background – and a bit of Advice

Starting in the spring and summer of 2008, the rumoured legislative clamp-down on corrupt & anti-competitive business practices by the government made the RSA business papers’ headlines.

During a presentation I gave at a Johannesburg conference in September that year (“Criminalising Competition Law: A New Era of ‘Antitrust with Teeth’ in South Africa? Lessons Learned from the U.S. Perspective“), I quoted a few highlights among them, asking somewhat rhetorically whether these were the words of fearmongers or oracles?

  • “Competition Bill to Pave Way for Criminal Liability”
  • “Tough on directors”
  • “Criminalisation of directors by far most controversial”
  • “Bosses Must Pay Fines Themselves”
  • “New leniency regime to turn up heat on cartels”
  • “New era in the application of competition policy in SA”
  • “Likely to give rise to constitutional challenges”
  • “New Bill On Cartels is a Step Too Far”
  • “Fork out huge sums or face jail time if found guilty”
  • “Disqualification from directorships … very career limiting”

I also quoted international precedent-setting institutions and enforcers’ recommendations, all of which tended towards the positive effect of criminal antitrust penalties:

OECD, 3rd Hard-Core Cartel Report (2005):

  • Recommends that governments consider the introduction and imposition of criminal antitrust sanctions against individuals to enhance deterrence and incentives to cooperate through leniency programmes.

U.S. Department of Justice, Tom Barnett (2008):

  • “Jail time creates the most effective, necessary deterrent.”
  • “[N]othing in our enforcement arsenal has as great a deterrent as the threat of substantial jail time in a United States prison, either as a result of a criminal trial or a guilty plea.”

While the presentation contained a lot more detail, the key recommendations that I summarised would seem to continue to hold true today, and may serve as guide-posts for Commissioner Bonakele and the EDD ministry:

Cornerstones of a successful criminal antitrust regime
  • Crystal-clear demarcation of criminal vs. civil conduct
  • Highly effective leniency policy also applies to individuals
  • Standard of proof must be met beyond a reasonable doubt
  • No blanket liability for negligent directors – only actors liable
  • Plea bargaining to be used as an effective tool to reduce sentence
  • Clear pronouncements by enforcement agency to help counsel predict outcomes
Demarcation of criminal vs civil antitrust conduct in U.S.
Demarcation of criminal vs civil antitrust conduct in U.S.

Internet & mobile operators at war: merge, acquire, complain

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Deals and accusations rock ZA’s Vodacom

The South African mobile operator landscape can be described as a microcosmic reflection of the larger African experience: Mobile technology is exponentially more developed than what an outside observer would otherwise predict, based on distinct economic predictors.  One of the key reasons for this highly-developed sub-Saharan mobile world is the concomitant lack of hard-wired infrastructure, necessitating that mobile make up for the copper-wire slack.  Other reasons include the hot topic of mobile banking (again: lack of brick-and-mortar banks necessitates mobile banking alternatives, such as M-Pesa’s services, on which AAT has reported extensively).

South Africa, as the continent’s largest (or second-largest, depending on whether you trust the revised Nigerian GDP numbers) economy, is of course at the forefront of the African mobile/internet frontier.

Now, the large South African operator Vodacom has rejoined the antitrust headlines simultaneously in two ways:

First, Vodacom ZA plans to acquire Neotel, a large S.A. internet provider, for 7 billion Rand (circa $650m).  This transaction will, of course, be subject to merger review by the South African Competition Commission (“SACC”).

Second, Vodacom has confirmed the prior reports of its competitor Cell-C’s October 2013 complaint, accusing Vodacom of discriminatory pricing, which is now being taken rather seriously by the SACC, according to TechCentral’s reporting.  On that front, Vodacom’s spokesman Richard Boorman is quoted as using classic competition-law argumentation as a clever shield:

“Cell C is apparently arguing for an increase in the price that Vodacom customers pay to call other Vodacom customers. It’s hard to argue that increasing prices would be a benefit to consumers.”

Vodacom’s official press statement on the Neotel deal follows below:

Vodacom reaches agreement to acquire Neotel

Monday, 19 May 2014

Further to the SENS announcement on 30 September 2013, Vodacom has reached an agreement with the shareholders of Neotel Proprietary Limited (“Neotel” or the “Company”) to acquire 100% of the issued share capital in, and shareholder loans against, Neotel for a total cash consideration equivalent to an enterprise value of R7.0bn.

Principal benefits of the transaction

Leading fixed telecommunications network

Neotel, which started operations in 2007, is the second largest provider of fixed telecommunications services for both businesses (commonly referred to as enterprise services) and consumers in South Africa. The company has access to over 15,000 km of fibre-optic cable, including 8,000 km of metro fibre in Johannesburg, Cape Town and Durban. Neotel also has access to 2 x 12 MHz of 1800 MHz spectrum, 2 x 5 MHz of 800 MHz spectrum and 2 x 28 MHz of 3.5 GHz spectrum.

Acceleration of Vodacom’s unified communications strategy

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 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. The combined entity will be able to offer an expanded and enhanced range of converged services (e.g. hosted PBX, OneNet) to enterprise customers. Vodacom estimates revenue synergies with a total net present value of approximately R0.9bn after integration costs.

Enhancement of next generation network capabilities in South Africa

The combination of Neotel’s and Vodacom’s networks will improve overall network availability and reduce the cost to serve customers. The combined business will also be ideally positioned to accelerate broadband connectivity in line with the South African 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-market consolidation with substantial cost and capex savings

Vodacom 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. The transaction values Neotel at a multiple of 8.8x annualised 1H2014 OpFCF, adjusted for cost and capex synergies.

Neotel management and employees

Vodacom looks forward to welcoming Neotel’s employees. Their fixed and enterprise skills will enable the combined entity to deliver enhanced and extended service offers.

Additional information on the transaction

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

The transaction remains subject to the fulfilment of a number of conditions precedent including applicable regulatory approvals and is expected to close before the end of the financial year.

Speaking about the transaction, Vodacom Group 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.”