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Cape Town - Vodacom on Tuesday took a step closer to finalising its R35 billion entry into the lucrative Kenyan mobile banking market after its minority shareholders gave its deal to acquire a 34.9 percent in Safaricom the thumbs up.

The deal will see Vodafone increase its interest in the Vodacom Group from 65 percent to 69.6 percent.

Shameel Joosub, the group chief executive at Vodacom, said that the transaction presented the company with the opportunity to diversify its financial profile in a single transaction.

“The vote of confidence from Vodacom’s minority shareholders is an important milestone in our journey to become a leading digital company and empowering a connected society,” Joosub said.

Earlier this year, Vodacom announced that it had agreed on a deal in which it would acquire a 34.94 percent indirect interest in Safaricom from Vodafone by acquiring 87.5 percent of the issued share capital of Vodafone Kenya.

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Vodafone Kenya is wholly owned by Vodafone. Vodafone will retain a 12.5 percent interest in Vodafone Kenya, equivalent to 4.99 percent interest in Safaricom, after completion of the proposed transaction.

Safaricom is currently 35 percent owned by the government of Kenya, while Vodafone Kenya holds a 39.9 percent stake; public investors hold a 25 percent equity and Safaricom employees 0.07 percent. Vodafone is selling down its stake in Safaricom as part of its drive to streamline its African businesses. The company provides a range of telecommunications services, including mobile and fixed voice, SMS, data, the internet and mobile money (M-Pesa) to more than 28.1 million customers.

Vodacom said Safaricom was the market leader in Kenya with a 71percent mobile customer market share. According to the International Monetary Fund, Kenya is projected to grow at 6percent per annum over the next five years.

Dobek Pater, a telecoms analyst at Africa Analysis, said the deal provided Vodacom with a greater presence in the East African region where the company already had footprints.

“It provides Vodacom with a direct stake in a company that is by far the strongest telecoms operator in the Kenyan market - one of the growth markets in Africa - with good financial returns,” Pater said.

“This means that Vodafone Group will have more than 50percent shareholding in Safaricom through its own share and indirectly through Vodacom Group shares. It may allow Vodafone to better control Safaricom going forward, although I am not privy to how the shareholders’ agreements are structured.”

Safaricom’s mobile money platform, M-Pesa, is an important driver of Kenyan economic growth, providing financial services to more than 19 million customers. M-Pesa, launched 10 years ago, lets people without bank accounts use their mobile phones to transfer money.

The tie-up between Safaricom and Vodacom comes just a year after Vodacom dropped M-Pesa in South Africa after it failed to gain traction in the country.

In the year ended March, Vodacom reported that its international operations had recovered from the customers disconnected in the prior year, adding 2.5 million customers, a 9.3 percent increase to total 29.7 million. South Africa's customer base grew by 8.6 percent in the period to 37.1 million.

Joosub said the deal found favour with shareholders, because the Kenyan Market promised good returns.

“This is an exciting deal that provides Vodacom shareholders with access to a high growth, high margin and high cash generating business in the attractive Kenyan market.

"The proposed transaction increases our presence in East Africa and makes Vodacom a formidable player in financial services on the continent.”

Vodacom shares dropped 0.41 percent on the JSE on Tuesday to close at R173.57.