Vodacom to buy Vodafone Egypt for US$2.7 billion

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Vodacom
Vodacom

Vodacom Group is entering North Africa for the first time, announcing on Wednesday that it will acquire Vodafone Egypt from parent Vodafone Group for US$2.72 billion. 

Vodacom said the proposed transaction “provides a unique opportunity” to accelerate its growth.

Vodacom will acquire the controlling stake in Vodafone Egypt subject to regulatory and shareholder approvals. It will fund the acquisition of a 55% stake in Vodafone Egypt by issuing 242 million new ordinary shares at R135.75/share and R8.2-billion in cash. “This values the proposed transaction at about R41-billion,” it said.

The remaining 45% of Vodafone Egypt is held by Telecom Egypt, the fixed-line incumbent.

Vodacom Group CEO Shameel Joosub said in a statement that buying a majority stake in Vodafone Egypt will increase Vodacom’s population coverage to more than 500 million people and more than 40% of Africa’s GDP.

“Vodafone Egypt is ideally positioned to capture growth in a burgeoning ICT market, which means the proposed acquisition provides our shareholders with an exciting revenue and profitability diversification opportunity and the potential to accelerate the group’s medium-term operating profit growth potential into double digits. We intend to provide an update on our medium-term targets at our full-year results, which will be reported in May 2022.”

Vodafone Egypt is 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, Vodacom said.

Leadership position

“Egypt’s appeal as an investment destination is supported by its economic growth outlook, large, young and growing population and structural reform agenda. Vodafone Egypt holds a strong network leadership position and is the country’s largest mobile wallet provider through Vodafone Cash. According to the national telecoms regulatory authority, Vodafone Cash had almost 90% of mobile wallet transactions as at August 2021.

“Vodafone Egypt has a proven track record of consistently delivering strong revenue growth, evidenced by a 14% FY17-21 revenue CAGR, while its future growth potential is underpinned by a broad range of fundamental sector and company specific drivers. In addition to a track record of revenue growth, Vodafone Egypt generates attractive margins and strong free cash flow,” it said.

Vodacom also sees a big opportunity in Egypt in fintech and mobile money, given that 80% of the population of 100 million people is unbanked.

“There is a significant opportunity to leverage Vodacom’s financial services platforms, global partnerships and best practices into this largely untapped market,” it said.

“In addition to financial services, Vodacom Group sees attractive synergy potential from combining Vodafone Egypt’s software factory with Vodacom Group’s existing big data capabilities, closer cooperation in scaling pan-African enterprise and IoT solutions, enabling the proliferation of digital services through a platform approach, and also talent sharing.”

Joosub said: “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. As this is a related-party transaction, we have implemented appropriate governance controls to ensure the transaction was and is negotiated, evaluated and executed on an arm’s length basis.”

On completion of the acquisition, Vodacom Group will simplify its dividend policy to at least 75% of headline earnings. The current policy is to pay at least 90% of adjusted headline earnings, excluding the contribution of Safaricom, and additionally to pass through Safaricom dividends received.

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