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Vodafone makes ZAR 19bn (£1.2bn/€1.6bn) bid to raise Vodacom stake

3 June 2008

Vodafone offered ZAR 18.75bn (£1.2bn/€1.6bn) to Telkom South Africa for an additional 12.5% stake in Vodacom. The offer is conditional on Telkom relinquishing its remaining 37.5% stake, by unbundling those shares to Telkom shareholders.

The offer immediately followed a ZAR 90bn bid for Telkom’s fixed-line operations from Mvelaphanda, a local black investment house, on condition that Telekom sells its 50% stake in Vodacom. Combined, the two bids would see Vodacom listed as a separate entity, thus separating Telkom’s fixed-line assets from its cellular operations. Vodafone’s offer does not depend on the Mvelaphanda bid being successful.

Although Telkom describes the two bids as “independent”, industry observers are universally considering them to be linked. “I think the Vodafone thing is happening. Telkom has to do something and the only thing it can do is sell Vodacom to Vodafone, then someone else buys what’s left”, said an internal Telekom source.

Telkom is saying little officially about the bids, as it is currently in a ‘closed’ period, ahead of its results announcement. In a limited statement, the company said it had received a “non-binding proposal” from Vodafone “to acquire a portion of Telkom’s stake in Vodacom, subject to the company unbundling its remaining stake in Vodacom to Telkom shareholders”.

Vodafone previously made clear that it would continue pursuing a majority share in Vodacom, following abandonment in 2007 of related talks with Telkom, but the likelihood of an imminent $66bn (£34bn/€42bn) merger (see separate report) between South Africa’s MTN and Reliance Communications (which competes with Vodafone in India) may have put pressure on Vodafone to complete a deal sooner.

Although Vodafone is keen to increase its stake in Vodacom beyond its existing 50%, and to use the company as a hub for its African expansion, it does not want to acquire a full 100% stake, in part probably because it would then be obliged to resell part under local Black Economic Empowerment (BEE) legislation (see separate report).

Vodacom has said that it will before the end of June 2008 announce its plans to comply with the BEE scheme, whereby black investment stakeholder entities will be offered a 30% share. Interestingly, an additional stake of 12.5% could increase the likelihood of Vodafone retaining control of Vodacom even after the company has complied with black ownership laws.

Increasing Vodafone’s stake in Vodacom from 50% to 62.5% would give the company control not only of Vodacom  South Africa, but also its operations in Lesotho, Mozambique, Tanzania, and elsewhere.

“ People are realising that Africa is the last great untapped economy frontier. South Africa is the largest and strongest market on the continent, and is very competitive, particularly in the mobile arena, but it is also growing very quickly and a number of providers see that as a useful platform to establish a presence on the continent.”
— Mike Grant, partner, Analysys Mason.

[Bloomberg, Business Day and The Guardian, 3 June 2008.]

Written by AB · Filed Under KnowVodafone 

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