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Vodafone confirms $900m acquisition of Ghana Telecom

3 July 2008

Vodafone issued a statement confirming reports (Vodafonewatch, passim) that it is acquiring control of Ghana Telecommunications Company Limited (GT) from the country’s government, paying $900m (£452m/€570m) for a 70%-stake.

This gives the venture an enterprise value of $1.3bn, and the state will retain a 30%-minority interest. The Group will undoubtedly be hoping to echo the success of is South African and Kenyan joint-ventures, with Vodacom market leader in South Africa (SA), and Safaricom now East Africa’s most successful company.

However, the move also lumbers Vodafone with a fixed-line operation (GT is number-three in the mobile segment), although this is relatively small and perhaps not the concern it might once have been, now that the Group’s Total Communications strategy embraces fixed-mobile, with WiMAX fixed-wireless offering promise of truly converged operations, and ownership of Germany’s Arcor gives deep sector experience (albeit as a pretender in a developed market). Fixed incumbency can sometimes also deliver competitive advantage via restrictive practices. Additionally, willingness to take on fixed-line operations may open additional opportunities in other African countries, where governments can be very keen to offload fixed-line operations and so might be willing to parcel them up with a mobile network operator (or at least a licence) to make the deal more attractive, such as Kenya recently did when selling a strategic stake in Telkom Kenya to France Telecom. The danger here is that Vodafone is saddled with a fixed-line operation that is inefficient and difficult to take forward.

The GT move had been well-flagged strategically, both in terms of continued emerging markets M&A activity, generally, and Africa, specifically. Vodafone is already reasonably well represented on the continent via its 50%-stake in Vodacom (worth around £5bn, and covering Congo, Mozambique, Lesotho, SA, and Tanzania), its 35% stake in Safaricom (worth around £850m), and control of Vodafone Egypt. Together these represent a decent portfolio, but the Group’s African operations nonetheless look somewhat fragmented, and the recently reported £1.2bn bid to buy a further 15% of Vodacom (Vodafonewatch, 2008.03) is clearly intended to address this. However, Vodafone has left its latest African expansion drive somewhat late, having for years restricted Vodacom to Southern Africa, and ignored earlier M&A opportunities, thus permitting MTN to take a head start outside of SA. France Telecom, Orascom, Zain and others have also built the foundations of significant regional groups.

Details

  • GT recorded revenue of $290m for 2007, and earnings before interest and tax (EBITDA) of $42m.
  • The company claims mobile market share of 17%, and Vodafone is now targeting 25%. At the end of March 2008, GT had 1.3 million mobile customers, 379,000 fixed-line, and 15,000 broadband.
  • Vodafone expects to invest a further $500m over five years, and to import offerings and best practices developed in other emerging markets.
  • As part of the deal, Vodafone will also be given the government’s fibre network assets.
  • Vodafone expects to complete the purchase in calendar Q3 (FY09 Q2).

Vodafone’s statement

3 July 2008: ACQUISITION OF A 70% STAKE IN GHANA TELECOM

Vodafone(1) announces today that it has agreed to acquire a 70% stake in Ghana Telecommunications Company Limited (“Ghana Telecom”), a leading telecommunications operator in Ghana, from the Government of Ghana for a total consideration of US$900 million (£452 million), on a debt-free, cash-free basis, implying a total enterprise value for Ghana Telecom of approximately US$1.3 billion (£646 million). The Government of Ghana will retain a 30% stake in the company.

Commenting on the transaction, Arun Sarin, Chief Executive of Vodafone, said:

“Ghana is one of the most attractive markets in Africa with mobile subscribers growing at more than 55% p.a. and mobile penetration around 35%. Our extensive operating experience together with our portfolio of products and services position us well to deliver a superior mobile experience to Ghanaian customers and significantly improve financial performance. I expect that our investment will generate substantial benefits for Vodafone and for the Ghanaian economy and we are delighted that we will be working in partnership with the Government of Ghana.”

Strong strategic rationale and turnaround opportunity

The principal benefits to Vodafone are:

  • Exposure to the attractive and growing Ghanaian telecommunications market
    - total population of 24 million with more than 50% under the age of 25
    - real GDP growth of 6.3% in 2007, contained inflation and a stable political background
    - low mobile penetration at c.35%, with 2.7 million subscribers added in 2007
    - significant additional growth prospects from recent oil field discoveries
  • Majority control of the number 3 mobile player and leading fixed-line operator
    - number 3 mobile player with approximately 17% market share and 1.4 million customers as at 31 March 2008
    - leading fixed line and broadband operator with c.99% of the total number of lines and c.90% market share of the retail ADSL market
    - revenue growth of 9.3%2 in the 12 months ended 31 December 2007 to US$290 million and a 2007 reported EBITDA of US$42 million
  • Substantial turnaround potential
    - Over the next 5 years, Vodafone expects Ghana Telecom to invest over US$500 million in its operations and network, restoring and expanding network coverage and completing and integrating the fibre backbone
    - Vodafone plans to leverage its experience of rapid network deployment in India and other emerging markets, its brand and successful customer propositions such as M-PESA and ultra-low cost handsets, to accelerate Ghana Telecom’s growth
    - Through these actions, Vodafone intends that Ghana Telecom will deliver a superior product and service offering in the Ghanaian market and thereby raise its mobile market share over time to around 25%, reversing recent underperformance

Other transaction details

As part of the transaction price, it has been agreed that the Government of Ghana’s fibre network assets will be transferred to Ghana Telecom.

The transaction remains subject to certain closing conditions, including approval from the Ghanaian Parliament. Vodafone expects the transaction to close in the third quarter of calendar year 2008.

Financial impact on Vodafone

The transaction meets Vodafone’s stated financial investment criteria.

The transaction is expected to be broadly neutral to adjusted earnings per share in the first year of acquisition.

Notes

  1. The purchaser is Vodafone International Holdings B.V., a wholly owned subsidiary of the Vodafone Group.
  2. Stated revenue growth is based on local currency.

Notes to Editors

About Vodafone

Vodafone is the world’s largest mobile telecommunications group, with equity interests in 26 countries and Partner Networks in over 40 additional countries. As of 31 March, 2008, Vodafone had approximately 260 million proportionate customers worldwide. For further information, please visit www.vodafone.com.

About Ghana Telecom

Ghana Telecom is the number 3 mobile operator and the leading fixed line and broadband operator in Ghana. As at 31 March 2008, it had 1.4 million mobile customers, equivalent to a mobile market share of approximately 17%, and operated 379,000 fixed and 15,000 broadband lines. For further information, please visit www.ghanatelecom.com.gh.

Important information

For illustrative purpose, an exchange rate of £1:US$1.99 has been used.

All financials relating to Ghana Telecom are based on the company’s 2007 annual accounts. Financial information for the year to 31 December 2007 has been translated using an exchange rate of GHc1:US$1.07.

Written by AB · Filed Under KnowVodafone 

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