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Vodacom Group's R41 billion Egyptian bet as it seeks to simplify its African footprint

Vodacom yesterday unveiled a proposed R41 billion acquisition of a majority stake in Vodafone Egypt from parent company Vodafone Group, which is seeking to simplify the management of its African footprint. Photographer: Nadine Hutton/Bloomberg

Vodacom yesterday unveiled a proposed R41 billion acquisition of a majority stake in Vodafone Egypt from parent company Vodafone Group, which is seeking to simplify the management of its African footprint. Photographer: Nadine Hutton/Bloomberg

Published Nov 11, 2021

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VODACOM yesterday unveiled a proposed R41 billion acquisition of a majority stake in Vodafone Egypt from parent company Vodafone Group, which is seeking to simplify the management of its African footprint.

Once completed the transaction will see Vodacom trimming its dividend policy.

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Vodafone said yesterday it had agreed to transfer its 55 percent shareholding in Vodafone Egypt to its sub-Saharan subsidiary Vodacom to simplify the management of its African business and further strengthen the delivery of connectivity and financial services on the continent.

Vodafone has been focused on placing its African assets under the control of Vodacom and in 2017 completed the transfer of its 35 percent in Kenyan mobile network Safaricom to Vodacom.

Vodacom told investors the acquisition would be funded by issuing 242 million new ordinary shares at R135.75 per share and R8.2 billion in cash, valuing the proposed transaction at R41bn or $2.738bn. Vodacom is set to cut its dividend policy by 15 percent as a result of the deal.

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

“Notwithstanding the change in dividend policy, Vodacom Group will still have one of the highest dividend payout policies on the JSE,” said the group.

Commenting on the transaction, Vodacom chief executive Shameel Joosub said that given the margin, growth potential and the financial services penetration, Vodafone Egypt was an attractive asset.

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“Acquiring a majority stake in Vodafone Egypt would cement Vodacom Group's position as Africa's leading telco by advancing our strategic connectivity and financial services ambitions while increasing our total population coverage on the continent to more than half a billion people and more than 40 percent of Africa's gross domestic product,” said Joosub.

Vodafone Egypt is the largest mobile network operator in Egypt with 43 percent revenue market share, offering a range of integrated telecommunications services including voice, data and mobile money services to 43 million consumer and enterprise customers.

“Vodafone Egypt is ideally positioned to capture growth in a burgeoning ICT market, which means the proposed acquisition provides our shareholders

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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,”Joosub said.

He said Vodacom would potentially introduce the VodaPay platform in Egypt.

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“We think that is extremely exciting growth potential on the financial services side,” Joosub said.

The transaction is expected to close before March 31, 2022, and is subject to a number of conditions, including Financial Surveillance Department of the South African Reserve Bank and approval from the National Telecom Regulatory Authority of Egypt.

Vodafone said Vodacom had received an in-principle letter of support to vote in favour of the proposed transaction from Public Investment Corporation (PIC), which owns 14.3 percent of the Vodacom shares in issue and 36.1 percent of the Vodacom shares in issue outside those held by Vodafone as at the date of their letter.

“The PIC's in-principle support is subject to it conducting an assessment and evaluation,” said Vodafone

Vodacom has also received an irrevocable undertaking to vote in favour of the transaction from YeboYethu Investment Company, which owns 6.2 percent of the Vodacom shares in issue and 15.8 percent of the Vodacom shares in issue outside those held by Vodafone.

Vodacom is part of a consortium that was awarded a telecommunications licence by the Ethiopian government.

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