Vodacom hits acquisition trail, begins with Vodafone Egypt for R41bn
Vodacom Group has agreed terms with Vodafone to acquire its controlling stake in Vodafone Egypt.
In a statement released to the media, Vodacom explained that subject to regulatory and shareholder approvals, it will fund the acquisition of a 55% stake in Vodafone Egypt by issuing 242 million new ordinary shares at R135.75 per share and R8.2-billion (US$548-million) in cash. This values the proposed transaction at circa R41-billion or US$2.738-billion.
Commenting on the proposed transaction, Shameel Joosub, CEO of Vodacom Group, said: “Acquiring a majority stake in Vodafone Egypt would cement Vodacom Group’s position as Africa’s leading techno by advancing our strategic connectivity and financial services ambitions while increasing our total population coverage on the continent to over half a billion people and more than 40% of Africa’s GDP. Vodafone Egypt is ideally positioned to capture growth in a burgeoning ICT market, which means the proposed acquisition provides our shareholders with an exciting revenue and profitability diversification opportunity and the potential to accelerate the Group’s medium-term operating profit growth potential into double digits. We intend to provide an update on our medium-term targets at our full year results, which will be reported in May 2022.”
According to Vodacom, Vodafone Egypt is the largest mobile network operator in Egypt with 43% revenue market share.
“Vodafone Egypt holds a strong network leadership position and is the country’s largest mobile wallet provider through Vodafone Cash. According to the national telecom regulatory authority, Vodafone Cash had almost 90% of mobile wallet transactions as at August 2021,” Vodacom stated.
It points to Vodafone Egypt’s fiscal track record and said it consistently delivers strong revenue growth, evidenced by a 14% FY17-21 revenue CAGR.
Vodacom Group shareholders are expected to gain significant value by scaling its multi-product strategy or “System of Advantage” into Egypt. With more than 80% of Egypt’s 100 million population unbanked, there is a significant opportunity to leverage its financial services platforms, global partnerships and best practices into this largely untapped market.
In addition to financial services, Vodacom Group is looking to leverage the opportunities arising from a combination of Vodafone Egypt’s software factory with Vodacom Group’s existing big data capabilities, closer cooperation in scaling pan-African enterprise and IOT solutions, enabling the proliferation of digital services through a platform approach, and also talent sharing.
Joosub added: “In 2017 we bought a strategic stake in Safaricom from Vodafone that has proven to be value accretive. We said at the time that we had negotiated an attractive price for Safaricom and we believe this to be the case with Vodafone Egypt. As this is a related-party transaction, we have implemented appropriate governance controls to ensure the transaction was and is negotiated, evaluated and executed on an arm’s length basis.”
Vodacom Group appointed PWC to provide a fairness opinion on the proposed transaction, which will be included in the circular that will be distributed to shareholders ahead of a General Meeting in January 2022 at which minority shareholders will vote on the matter.
Vodacom said: “As this is a related-party transaction, Vodafone, which currently holds a 60.5% stake in Vodacom Group, will be precluded from voting on this at the meeting. Once all of the conditions precedent are met pertaining to the proposed transaction, the acquisition is expected to conclude before 31 March 2022.”
On completion of the acquisition, Vodacom Group will simplify its dividend policy to at least 75% of headline earnings. The current policy is to pay at least 90% of adjusted headline earnings, excluding the contribution of Safaricom, and additionally pass-through Safaricom dividends received.
In February of this year, Egypt’s Ministry of Communications and Information Technology announced its plan to ensure that telecommunications contributes up to 8% to GDP in the next three years, up from the current level of 4.4%.
Strategic fibre acquisition
Vodacom Group has also announced that it has agreed terms to acquire a strategic stake in Community Investment Ventures Holdings’ (CIVH) fibre assets that it claims will transform its South African fibre business and “accelerate the purpose-led Group’s ambition of connecting people for a better future.”
Subject to regulatory approvals, Vodacom Group will hold a co-controlling 30% equity interest in a newly formed InfraCo entity into which all of the material assets currently owned by Dark Fibre Africa (‘DFA’) and Vumatel will be transferred in addition to certain Vodacom owned fibre assets.
Vodacom has an option to acquire an additional 10% stake in InfraCo to 40%.
According to a statement released by the Group, it will fund the transaction through a combination of R6-billion cash and the contribution of its fibre-to-the-home, fibre-to-the-business and Business-to-Business transmission access fibre network infrastructure to the InfraCo, at a valuation of R4.2-billion, in return for new shares in InfraCo.
Vodacom will acquire further (secondary) shares from CIVH sufficient to increase its shareholding to at least 30% in the InfraCo at a pre-agreed formula.
The transaction will enhance and scale Vodacom’s fixed offerings across both the consumer and business segments and leverage a shared cost model to accelerate the provision of open-access infrastructure in South Africa.
“Ultimately, the South African consumer will benefit from the fresh capital injection and shared cost approach as it will significantly scale-up the fibre reach of the InfraCo’s various fibre brands, including smaller towns. This is expected to have a positive impact on both Vodacom’s and the country’s network quality and resilience, which in turn will help fast track South Africa’s connectivity rate,” Vodacom stated.
Joosub added: “Our agreement with CIVH aligns with Vodacom Group’s strategy to build high quality and resilient fixed and mobile networks with and through selected strategic partnerships across the African continent. It also supports Vodacom’s purpose-driven plan to assist the government in rebuilding the economy post-COVID.”
CIVH Group CEO Raymond Ndlovu says: “This milestone investment will boost our ambitious fibre roll-out programme across the country and assist in narrowing the digital divide by enabling affordable access to connectivity in some of the most vulnerable parts of our society. Ultimately, it will result in much needed inclusive economic growth.”