Vodacom is buying a 34,9% indirect stake in Kenya’s largest mobile phone operator, Safaricom, from its parent company Vodafone.
The South African-listed telecommunications group is buying 87,5% of Vodafone Kenya, which is wholly owned by the UK-headquartered Vodafone. Vodafone Kenya holds, as its only material asset, a 39,9% interest in Safaricom.
As part of the deal, Vodafone will subscribe for new Vodacom shares. Based on Friday’s JSE closing price of R152,49 per Vodacom share, the proposed transaction is worth R34,6bn. This represents a 5,9% discount to the Safaricom share price on the Nairobi Securities Exchange at closing ahead of the announcement.
Vodafone will retain a 12,5% interest in Vodafone Kenya, equivalent to a 5% interest in Safaricom, after completion of the proposed transaction. It will have the right to nominate one of the four directors appointed by Vodafone Kenya to Safaricom’s board as long as it retains at least 12,5% of the issued share capital of Vodafone Kenya.
Safaricom, which was founded 20 years ago, is owned by the government of Kenya (35%), Vodafone Kenya (39,9%), public investors (25%) and Safaricom employees (0,07%). The company has a market share of 71%, making it Kenya’s largest mobile operator by far.
“Safaricom is a high-growth, high-margin and high-cash-generating business,” Vodacom said on Monday. “In its 2017 financial year, Safaricom delivered 8,8% revenue growth, adjusted Ebitda margin of 48,1% and cash flow conversion of 65,9%.” Ebitda is a measure of operating performance.
“Safaricom has a track record of sustainable growth, having delivered a compound annual growth rate in revenue of 14,8% over the last five years, while its future growth potential is underpinned by a broad range of fundamental drivers,” Vodacom added.
“The proposed transaction will expose Vodacom Group to the attractive high-growth Kenyan market, being one of the largest and most advanced economies in east and central Africa that has made significant strides in technological innovation.”
Kenya has a mobile penetration of 88%, which is well below South Africa’s mobile penetration of 146%. It also has an emerging urban middle class with an appetite for high-value goods and services, Vodacom said. “Kenya has high potential for further growth in mobile penetration and data usage is expected to continue to grow, which will increase customer demand for Safaricom’s 3G and 4G mobile, fixed-line and digital services.”
The deal will give Vodacom closer access to Safaricom’s money platform, M-Pesa, which has more than 19m monthly active customers and which forms an important component of the Kenyan economy.
“Vodacom Group sees scope to create further value through closer cooperation between both companies, including best practice sharing; replication of Safaricom’s success in M-Pesa in Vodacom Group’s other territories; and the creation of new pan-African enterprise solutions in contiguous markets in East Africa.”
Vodacom said the proposed deal will also offer an opportunity to diversify its economic exposure and earnings profile in a single transaction. Its interest in Safaricom will contribute about 15% of its earnings (before amortisation for the fair value adjustment of assets on acquisition) based on its 2017 full-year results.
“We have negotiated what we believe is an attractive price for access to an additional 28,1m customers and one of the most successful and innovative telecoms companies in Africa,” said Vodacom CEO Shameel Joosub in a statement.
“The transaction will be financially accretive for Vodacom’s shareholders based on the 2017 financial year results, excluding the effects of amortisation on intangibles created on acquisition, and will further enhance our investment case and strategic position.”
Following completion of the deal, Vodafone’s stake in Vodacom will increase from 65% to 69,6%. This could push Vodacom’s free float below the minimum 20% requirement for its listing on the JSE. Should there be a breach in free float, Vodacom has secured a two-year exemption from the JSE from the date the deal is done. Vodafone has agreed to sell as many as 36,3m Vodacom shares within that two-year period, if required. — © 2017 NewsCentral Media
