DiData denies talks with Neotel

By Nicola Mawson for Neotel
Johannesburg, 11 Oct 2006

Dimension Data SA has denied that it is in talks with the second national operator (SNO) to sell a majority stake in Internet Solutions (IS).

However, the ICT market is rife with speculation that Neotel is seeking to buy out an IT services firm to strengthen its competitive position against Telkom.

Telkom`s bid for Business Connexion is at the Competition Commission, where it is expected that the investigation into the merger will drag on for the rest of this year, at least.

One source says Neotel is about to, or has, offered DiData "a very favourable price for a majority stake in IS". The source says Neotel is attracted to the "cash cow".

But Michelle Atkins, Dimension Data`s communications manager, says: "This is 100% market speculation with no substance."

Strategic move

Analysts say it would make sense for Neotel to acquire an IT services arm. One, who spoke on condition of anonymity, says it made sense in principle. Another analyst pointed to the global trend of convergence in IT and communications.

At Neotel`s launch, MD Ajay Pandey said Neotel`s strategic objectives were to become the preferred provider of leading-edge telecoms in SA.

However, the first analyst says it is unlikely DiData would give up its stake in IS, unless it was sold at about a 30% to 40% premium. "Anything is for sale at the right price."

DiData`s relationship with indirect Neotel stakeholder Tata, in India, is strong, the analyst says, and this could pave the way for a deal. He adds he did not, however, see Neotel buying out all of DiData, unless this was done at Tata level.

"There is no way it [Neotel] would want an IT services arm on six continents, maybe Tata, but not Neotel."

Government stake

The other analyst suggests that, because of government`s 30% indirect stake - through Transnet and Eskom - in Neotel, there might be a possible link up with arivia.kom.

However, he says arivia.kom`s client base was limited, as over 85% of its clients were in the utility and public services sector.

He adds that IS is one of Neotel`s customers as it sources international bandwidth from the SNO. But, he says, IS itself has limited capabilities in terms of IT services.

From a strategy point of view, the analyst suggests that DiData would not sell IS, so Neotel may have to buy DiData SA in order to access that profit base.

DiData also recently denied that it was in takeover talks with Telkom. Neotel was contacted for comment, but was not immediately able to respond.