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Information and communications technology (ICT) giant Vodacom Group plans to acquire a controlling stake in Vodafone Egypt for R41-billion.
The group, which announced on November 10 that it had agreed terms with Vodafone, will fund the acquisition of a 55% stake in Vodafone Egypt by issuing 242-million new ordinary shares at R135.75 a share and R8.2-billion in cash.
This values the proposed transaction, which remains subject to regulatory and shareholder approvals, at about R41-billion.
“Acquiring a majority stake in Vodafone Egypt would cement Vodacom Group’s position as Africa’s leading techco 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 gross domestic product,” said Vodacom CEO Shameel Joosub.
Following the proposed transaction, Vodacom Group will cover a population of more than 500-million across the Democratic Republic of Congo, Egypt, Ethiopia, Kenya, Lesotho, Mozambique, South Africa and Tanzania.
He commented that the proposed deal would provide shareholders a revenue and profitability diversification opportunity that had the potential to accelerate the group’s medium-term operating profit growth potential into double digits.
“Vodafone Egypt is ideally positioned to capture growth in a burgeoning ICT market,” he said, noting that Vodafone Egypt was the largest mobile network operator in Egypt with 43% revenue market share, offering a range of integrated telecommunications services including voice, data and mobile money services to 43-million consumer and enterprise customers.
Vodafone Egypt has a proven track record of consistently delivering strong revenue growth, with a compound annual growth rate of 14% in revenue from 2017 to 2021, as well as generating attractive margins, strong free cash flow and a return on capital employed of 31% for the financial year ended March 31.
Further, Vodafone Egypt is the country’s largest mobile wallet provider through Vodafone Cash, which boasted almost 90% of mobile wallet transactions as at August 2021.
“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,” Joosub added.
Vodacom also believes that there is attractive synergy potential through the combination of Vodafone Egypt’s software factory with Vodacom Group’s existing big data capabilities, closer cooperation in scaling pan-African enterprise and Internet of Things solutions, enabling the proliferation of digital services through a platform approach and talent sharing.
“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,” he said.
As the transaction is third-party related, Vodacom implemented the 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 the group will include in a circular to be distributed to shareholders ahead of a general meeting in January 2022 where minority shareholders will vote on the matter.
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 March 31, 2022. On completion of the acquisition, Vodacom Group will simplify its dividend policy to at least 75% of headline earnings,” Joosub noted.
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.