TOKYO/LONDON Nippon Telegraph and Telephone Corp (NTT) (9432.T) agreed to buy South African IT firm Dimension Data DDTJ.JDDT.L for $3.2 billion as it seeks growth in emerging markets to offset a stagnant economy at home.
Dimension Data (DiData), which is a major reseller for networking equipment giant Cisco Systems (CSCO.O), has seen growth in Asia and Africa as customers buy its expertise in bringing their IT and telecoms networks together.
"I want Dimension Data to be the core for NTT's global strategy," NTT President Satoshi Miura told Tokyo-based reporters via a video link-up from London.
"Dimension Data has a strong presence in emerging markets, especially in Africa, South America and the Middle East, where NTT has a smaller presence. Its brand power is stronger than NTT's overseas."
Fujio Ando, senior managing director at Chibagin Asset Management, said it was good move by NTT to have a business base in South Africa, given its growth potential.
"NTT has to expand overseas operations since the Japanese market has almost reached saturation. A stronger yen provides good opportunities for Japanese companies to buy overseas assets," he said.
The 2.1 billion pound offer, which at 120 pence a share represents an 18 percent premium to DiData's closing price in London on Wednesday, is supported by DiData's board and largest shareholders, which combined hold 52 percent of the stock.
South African billionaire Johann Rupert, chief executive of Swiss luxury group Richemont (CFR.VX), and his family control 25.2 percent of DiData, while fund holder Allan Gray Limited holds 25.8 percent.
Both support the bid, but they could withdraw backing if another company comes in with a bid at least 10 percent higher.
Roger Phillips, analyst at Evolution Securities in London, said he was slightly surprised NTT was not paying a larger premium.
"(DiData) has got a really strong IT services franchise in South Africa and Datacraft is the leading Asian systems integrator," he said.
Dimension Data's shares jumped more than 20 percent after the bid was announced, and were trading at 121.7 pence in London at 1529 GMT, above NTT's offer price indicating that investors were hoping for a higher bid.
Paul Hopper, an M&A analyst at broker Aviate Global, said there was a "long list" of potential counter bidders, including Hitachi (8036.T), HCL (HCLI.BO), Infosys (INFY.BO), Cap Gemini (CAPP.PA), IBM (IBM.N) and Oracle ORCL.O.
But other analysts said NTT's hefty cash bid was likely to deter competitors.
A London-based analyst who did not want to be named said it was a "pretty chunky" price for a cash offer. "I don't think you can expect another bidder to step in. There are a limited number of tech companies that have $3 bln plus in spare cash."
DiData CEO Brett Dawson said NTT would keep the business intact and based in South Africa.
Derek Wilcocks, managing director of DiData's Internet services unit IS, said NTT was also very strong in research and development, particularly in cloud computing -- where data is stored and processed on shared remote servers -- and datacenter networks. "Together we have a strong vision in the convergence market," he said.
NTT plans to launch a tender offer for the outstanding shares in the firm, which also operates in North America and Europe.
It will finance the acquisition through a combination of its own cash and debt. The deal would mark the largest acquisition of a firm in sub-Saharan Africa by a Japanese company, according to Thomson Reuters data.
Japanese companies have been slow to enter Africa, which offers huge potential growth in mobile telephony and information technology, thanks to rising personal incomes, a growing middle class and improving infrastructure.
Miura said he expected NTT's annual overseas sales to reach $7 billion with the acquisition. Last business year, NTT made revenues of 270 billion yen ($3.1 billion) overseas.
In the past, NTT group had been hit hard by making wrong bets on overseas investments.
Its mobile phone unit NTT DoCoMo (9437.T) suffered huge losses as the result of its stake-taking spree in overseas rivals during the late 1990s and early 2000s.
Shares of NTT closed down 1.6 percent at 3,705 yen, after the news was first reported by Japan's Nikkei business daily. The benchmark Nikkei average .N225 fell 1.1 percent.
Asian rivals have been aggressively establishing a presence in Africa. India's Bharti Airtel Ltd (BRTI.BO) last month completed a $9 billion acquisition of mobile operations in 15 African countries from Kuwait's Zain (ZAIN.KW).
Also last month, China Mobile (0941.HK) Chief Executive Wang Jianzhou told Reuters that the world's biggest mobile-phone carrier is looking for acquisitions in Africa.
Morgan Stanley advised NTT on the deal and JPMorgan Casenove advised Dimension Data.
(Additional reporting by Yumiko Nishitani, Junko Fujita and Taiga Uranaka in TOKYO, Quentin Webb in LONDON and David Dolan in JOHANNESBURG; Editing by Muralikumar Anantharaman and Erica Billingham)