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Vodacom South Africa to acquire 35% stake in Safaricom for $2.6 billion

South Africa’s Vodacom Group is set to acquire a 34.94% stake in Safaricom by issuing 226.8 million new ordinary shares to further enhance Vodacom as a leading African mobile communication company, give it an opportunity to diversify its revenue growth and profitability and build on Safaricom’s M-PESA platform for growth across the larger East Africa.

M-PESA already failed in South Africa as a USSD platform but with a new app, Vodacom might be interested in trying the services again. However, the markets are totally different and M-Pesa’s success, heavily pegged on peer-to-peer transfers might not be easily replicated to other markets.

According to Shameel Joosub, Chief Executive Officer of Vodacom Group, “Acquiring a strategic stake in Safaricom will provide our shareholders with access to a high growth, high margin, high cash generation business operating in a high growth market. In addition to producing mutually beneficial opportunities for growth, it will create further incremental value through the close cooperation between the two businesses, particularly in driving M-Pesa adoption across our operations.”

The 35% Kenyan government stake in Safaricom will remain unchanged while UK’s Vodafone PLC will retain just 5% stake in Safaricom. Vodafone owns 65% of Vodacom and this move will see it have one point of control over Africa’s largest mobile telephony services. The deal gives South Africa’s Vodacom control to Safaricom’s M-Pesa, which is an important driver of Kenyan economic growth, providing essential financial services to over 19 million customers.

Though not rebranding Safaricom to Vodacom at the time, the proposed transaction will improve Vodacom Group’s presence in East Africa, jointly increasing the company’s growth in financial services customers to 32 million, making it a formidable player in financial services on the continent.

Vodacom’s interest in Safaricom proportionally equates to approximately 12.6% of the Group’s reported service revenue as announced in its latest year end results. The transaction provides a large level of diversification in a single transaction and Safaricom is highly complementary to Vodacom Group’s existing footprint.

Joosub adds: “We have negotiated what we believe is an attractive price for access to an additional 28.1 million customers and one of the most successful and innovative telecoms companies in Africa. The transaction will be financially accretive for Vodacom’s shareholders based on FY17 results, excluding the effects of amortisation on intangibles created on acquisition, and will further enhance our investment case and strategic position. Given that this is a related-party transaction, appropriate governance controls have been implemented to ensure that the transaction was and is negotiated, evaluated and executed on an arm’s length basis.”

 

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