Mergers, Acquisitions and Financial Results

The proposed USD140 million transaction involving Econet Wireless International (EWI) and Allied Technologies Limited (Altech) moved closer to consummation this week following conclusion of the due diligence exercise on EWI. Sources privy to developments said Altech finalised the due diligence last Friday and indications were that the company was eager to press on with the deal.

Contacted for comment, an official at Altech’s Johannesburg head office said the company would make a further announcement pertaining to the deal at the end of June."Our CEO has committed to making a statement on the findings of the diligence exercise at the end of the month," the official said.

The sources said indications were that Altech had liked what it saw during the protracted due diligence exercise, which had led to speculation that the deal might fall through.However, there could be some alterations to the original deal, with Altech now reported to be keen on keeping a wide berth on Lesotho, where EWI has 70 percent equity in Telecom Lesotho, a joint venture with the government.

This was because of penalties the Lesotho regulators slapped on operators who failed to reach certain subscriber thresholds.The loss of Lesotho looks set to be offset by the addition of Papua New Guinea under EWI’s broadening ambit.Negotiations for the Papua New Guinea project are reported to have progressed well.

EWI investor relations executive Kevin Kachidza said the group had never been unnerved by the length of time the diligence exercise had taken since the deal was first announced in January.

"We have been in discussions with Altech for about three years. Altech is a conservative company, and we are conservative too, in our own way, but we have always noted that there are numerous synergies that make the deal attractive.

"We were in no way alarmed by the length of the due diligence because of the geographic spread of the EWI assets," Kachidza said.Following the conclusion of the due diligence exercise, the proposed transaction will now be considered by the Altech board, before shareholders vote on it.

Should it be sewn up, the deal entails Altech taking up 50 percent equity in EWI, which has business interests in Nigeria (a five percent stake in what was Econet Nigeria but now VMobile), Botswana, the United Kingdom, New Zealand and Kenya, as well as a satellite services division and the upcoming Papua New Guinea venture.The Lesotho and Zimbabwe operations would initially be excluded from the transaction, although the door has not been shut on the possibility of future participation.

Zimbabwe’s Econet Wireless Holdings Limited, which played midwife to the international operation, cannot be brought into the deal due to exchange control constraints, but shareholders in Zimbabwe’s biggest mobile phone firm stand to benefit from the Altech deal via the Econet Wireless Holdings Shares Trust, which will warehouse the shares until exchange control approval is obtained for EWHL shareholders to accept them.

While Altech will get 50 percent of the NewCo to be established should directors and shareholders approve the deal, the other half will be held by Econet Wireless Ventures.Econet founder Strive Masiyiwa and his family will own 47.62 percent through TSMI Limited, while the Econet Wireless Shares Trust will hold 46.16 percent and an employees’ trust will own 6.22 percent.

The consolidated company to emerge from the merger is expected to launch an aggressive bid for majority control of VMobile in Nigeria, following the decision by South Africa’ Vodacom, a prospective ultimate shareholder in the undercapitalised venture, to pull out.Altech is an investment holding company, and is a leading South African multi-billion-rand telecommunications multi-media technology group.

The company’s main operating subsidiaries are Autopage Cellular, Netstar, UEC Technologies, Arrow Altech Distribution, Alcatel Altech Telecoms, Alcom Systems, Alcom Radio Distributors and Altech Data.The cash-rich and technologically endowed Altech is expected to provide the muscle for EWI’s international expansion drive.

Financial Gazette