Altech snaps up 50% stake in Econet

Altech snaps up 50% stake in Econet

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By Agencies

CELLULAR network company Econet Wireless' lack of money to fund growing its foreign operations has played into (Allied Technologies') Altech's hands, allowing it to acquire half of a new joint venture with Econet for $70m.

Altech CEO Craig Venter said it was no secret that Econet did not have enough cash to grow all its operations, allowing Altech to clinch a deal yesterday to buy the stake in Econet at what was probably well below true market value.

"Econet needs a cash partner. That was one of the reasons why Altech managed to conclude quite an attractive deal at a good valuation of 70m" he said.

Econet holds a 5% stake in Vee Networks in Nigeria, and that alone was probably worth $50m, he said.

The $70m buy-in was announced in January, but due diligence highlighted some Econet operations that Altech has excluded from the deal. The final deal is still priced at $70m, but now includes Econet's right to buy 51% of Telikom Papua New Guinea, a state-owned monopoly that is being partially privatised, and whose networks were running profitably, said Venter.

Taken out of the deal were operations in Kenya, where Econet is building a network. That project was too cashintensive for Altech to want to share, said Venter. Operations in Lesotho were also excluded. Venter said he had listened to analysts' concerns that some of Econet's activities would drain cash from Altech, or give it a high risk profile.

Econet's cash problems meant several SA-based Zimbabwean executives had to move back to Zimbabwe.

Much of its money is being spent on legal action to protect its stake in Vee Networks, after its Nigerian partners curtailed Econet's management deal and called in Vodacom instead.

Vodacom has since pulled out, but Econet is claiming damages for the curtailed management contract, aiming to prove it has a right to increase its stake from 5% to 33%.

That action had eaten up so much cash that some staff could no longer be supported in SA, said one disgruntled former employee.

Econet director Zachary Wazara confirmed that some staff were asked to return to the Zimbabwean operations, but said this was part of a structural realignment in the company.

At the same time, Econet had brought in several new managers to strengthen its team ahead of the Altech deal, he said.

Wazara denied any cash-flow problems, but said Econet did have difficulty with project financing.

"Econet is able to get projects going, but our growth is restricted by the cash resources required to push our projects forward. That requires a partnership with someone like Altech," he said.

The deal will cost Altech far more than its initial $70m in the years ahead , but no figure has been put on the probable spending overall.

Additional investment would vary, depending on the pace of expansion in each country and fresh opportunities that arose, said Venter.

Heavy investment in Nigeria may result if Econet wins its battle to buy more shares in that network.

Such an investment would be positive because the Nigerian market was so lucrative, said Venter.
Business Day
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