Global Insight Perspective | |
Significance | Vodacom will become a subsidiary of Vodafone, and will be converted into a public company and listed on the Johannesburg Stock Exchange (JSE). The remaining 35% will be de-merged by Telkom to its own shareholders. |
Implications | Under the transaction, Telkom's shareholders will therefore receive both a dividend from the sale of 15% of its 50% stake in Vodacom and a direct shareholding in Vodacom from the remaining 35%. Telkom itself will retain 50% of the proceeds from the sale, which it will reinvest to "fully execute its core strategy". |
Outlook | The transaction is expected to close and Vodacom Group shares be listed on the JSE during the first half of 2009 subject to a number of conditions, including the approval of 75% of Telkom shareholders, the South African competition authorities and the regulator, that the remaining 35% is de-merged to Telkom's shareholders, and that Vodacom is listed on the JSE. |
Telkom SA, South Africa’s fixed-line incumbent, currently owns a 50% stake in Vodacom; Vodafone currently owns the other 50% after increasing its stake from 35% in 2006 for 16 billion rand (US$2.43 billion). Vodafone has been pursuing an additional shareholding in Vodacom for 18 months and during October 2008 said, after a new round of discussions had begun in May 2008, that it had made a non-binding proposal to acquire a further 15% stake in Vodacom for 22.5 billion rand (US$2.47 billion—see Sub-Saharan Africa: 10 October 2008: Vodafone Offers US$2.5 bil. for Further 15% Stake in Vodacom).
Both Vodafone and Telkom announced yesterday (6 November) that Vodafone has agreed to acquire an additional 15% stake in Vodacom from Telkom for 22.5 billion rand (US$2.28 billion) less the pro-rata consolidated attributable net debt of Vodacom Group as at 30 September 2008 of approximately 1.55 billion rand (US$157.4 million). The transaction will increase Vodafone’s shareholding in Vodacom Group from 50% to 65%, and Vodacom will become a subsidiary of Vodafone. Vodacom Group will be listed on the Johannesburg Stock Exchange (JSE) and the remaining 35% of Vodacom Group will be de-merged by Telkom to its shareholders.
The acquisition is subject to a number of conditions, including approval by 75% of Telkom’s shareholders; Vodacom Group listing on the JSE; and Telkom de-merging the remaining 35% of Vodacom Group to Telkom’s shareholders. According to a company press release, Telkom’s two largest shareholders—the South African government and the Public Investment Corporation Limited, owning a combined 58%—have irrevocably committed to vote in favour of the transaction and will become significant shareholders in Vodacom Group following the completion of the transaction. The government has agreed that it will retain a minimum shareholding of 10% in Vodacom Group for a period of 12 months after the listing on the JSE.
Both Telkom’s board and the government are supportive of the transaction. "The Telkom board is confident that this transaction will unlock significant value for shareholders and will facilitate the transformation of Telkom into a leading converged information and communications technology (ICT) player on the African continent,” said Telkom’s chief executive, Reuben September, in a company press release. Meanwhile, Minister of Communications Ivy Matsepe-Casaburri said that the sale of Vodacom would have a positive impact on South Africa as a nation. "This transaction represents one of South Africa's largest recent foreign direct investments and signals Vodafone's confidence in the future of our country. Furthermore, it enables Telkom to speed up its deployment of enhanced fixed and mobile services to South Africans. We are confident that this transaction is beneficial to the nation, as well as to Vodacom and Telkom, and look forward to them entrenching their positions as communications champions across the African continent."
Outlook and Implications
Under the transaction, Telkom’s shareholders will therefore receive a dividend from the sale of the 15% of its 50% stake in Vodacom and under the de-merger will also receive a direct shareholding in Vodacom from the remaining 35%. Telkom said that it will distribute 50% of the after-tax proceeds from the sale transaction to Telkom shareholders by way of a special dividend, which will be paid upon closure of the transaction, expected to take place in the first half of 2009. Telkom itself debuted on the JSE and New York Stock Exchange (NYSE) in March 2003 and by 31 March 2008, 50.14% of Telkom’s shareholders were non-public and 49.8% were non-public.
Telkom itself will retain 50% of the proceeds from the sale, which it will reinvest to accelerate the development of its mobile and data strategies, and allow the operator to selectively expand its geographic presence. Reuben September said the transaction will unlock significant value for Telkom shareholders and will allow the company to fully execute its core strategy. He said that the shareholders agreement between Vodafone and Telkom placed several significant restrictions on both Telkom and Vodacom. Liberated from the restrictive shareholders agreement, Telkom can now act independently and is well-positioned for future growth. Furthermore, Telkom will no longer be restricted to offering mobile voice services in South Africa or making mobile acquisitions in Africa south of the equator.
Vodafone has agreed that Vodacom will be the exclusive investment vehicle through which it will make acquisitions in sub-Saharan Africa (excluding North Africa, Ghana and Kenya where Vodafone is already present). Vodacom is the largest operator in South Africa with a 55% market share and has subsidiaries in DRCongo, Lesotho, Tanzania and Mozambique, reporting a group total of 34.563 million subscribers by 30 June 2008 (see Sub-Saharan Africa: 22 July 2008: Vodacom Reports 34.6 mil. African Subscribers). Meanwhile, Vodafone also holds a 40% stake in Safaricom, the leading Kenyan operator, a 50.1% stake in Vodafone Egypt, and Ghanaian mobile operator One Touch through the 70% stake it has just acquired in Ghana Telecom. Safaricom reported 10.231 million subscribers by the end of March 2008, a 68% increase over the 6.083 million reported a year previously (see Kenya: 29 May 2008: Safaricom Reaches 10.2 mil. Subscribers, Reports 29.3% Annual Revenue Growth). One Touch had 1.4 million subscribers by the end of March 2008 (see Ghana: 18 August 2008: Vodafone Completes Acquisition of 70% Stake in Ghana Telecom).