Months after Vodacom gave up on a long-drawn out takeover of Neotel, Econet, through subsidiary Liquid Telecom, has swooped in to acquire the company, giving it access to valuable spectrum without it having to overcome the regulatory problems Vodacom faced.

In a 70%-30% tie-up, Liquid is partnering with Royal Bafokeng Holdings, which said it wanted to diversify its portfolio.

The combination of Liquid and Neotel would create the largest pan-African broadband network, spanning about 40,000km of fibre networks in 12 countries, from SA to Kenya, the companies said.

They plan to “rehabilitate” struggling Neotel, which has been battling to gain traction almost 10 years after it entered the highly competitive market.

Liquid and the Royal Bafokeng would aim to improve network access and performance to cater for rapidly accelerating mobile and enterprise data traffic. Neotel’s neglected consumer business is expected to get a boost.

Econet was founded by Zimbabwean businessman Strive Masiyiwa.

Liquid Telecom has network infrastructure and services licences in SA, and it holds similar licenses in other countries.

The deal has to be approved by regulators, but Liquid Telecoms said it did not anticipate major hurdles as its operations in SA were “very limited in size”.

That made for fewer competition issues than those arising from the failed Vodacom deal.

In March, Vodacom called off its R7bn bid for Neotel after two years of discussions because of regulatory scrutiny over its intentions regarding Neotel’s spectrum. Competitors Cell C and MTN had also objected to the takeover.

Liquid Telecom CEO Nic Rudnick said the facilities offered through the tie-up would allow African companies to connect with each other in a “cost effective and reliable way, all on a single fibre network”.

Liquid Telecom planned to file for an initial public offering in a European country in 2016, it said, without revealing on which stock exchange.

For Neotel’s owners, the Tata Group, the transaction would help its push to sell assets.

Chairman Cyrus Mistry seeks to pare debt and boost profit.

Neotel’s debt is estimated at R5.1bn. In an interview with CNBC in Delhi, Tata Communications chief financial officer Pratibha Advani said part of its decision to sell Neotel was that it was not part of its core business, and it wanted to focus on its data services business.

Albertinah Kekana, Royal Bafokeng Holdings CEO, said the transaction was part of its diversification strategy and its objective to invest in high-growth sectors.

This is the second investment in the telecoms sector by Royal Bafokeng. It already owns a 2% stake in Vodacom SA.

Asked if Royal Bafokeng would consider bidding for part of the Public Investment Corporation stake in Vodacom if and when it became available to black investors, Kekana said that the investment company was “continuously reviewing its portfolio and seeking new opportunities, as part of a long-term diversification process.”

•BusinessDay South Africa/ Bloomberg. Photo shows Econet Founder Strive Masiyiwa.

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