Wednesday 16 August 2017

Vodafone transfers stake in Kenya operator Safaricom to Vodacom

Vodafone transfers stake in Kenya operator Safaricom to Vodacom
(Financial Times 05/16/17)
Vodafone transfers stake in Kenya operator Safaricom to Vodacom

Latest step by UK telecoms group to simplify assets as talk continues of bigger deals.

Vodafone has transferred a 35 per cent stake in Kenyan operator Safaricom to Vodacom, its listed South African business, in the UK telecoms group’s latest move to simplify its sprawling global empire.

The €2.3bn switch will be paid for in new Vodacom shares issued to Vodafone and means the Kenyan company will now be controlled at arm’s length.

Under the leadership of chief executive Vittorio Colao, Vodafone has set about reorganising its portfolio of global assets. That plan has led to a merger with Idea Cellular in India to create the country’s largest telecoms company, combining its business in the Netherlands with Liberty Global’s cable company Ziggo and a failed attempt to buy a pay-television company in New Zealand.

The UK company’s emerging market assets have been seen as an impediment to a sale or merger of the business, with potential partners only interested in its European footprint.

Some analysts argued that the African roll-up could be a precursor to a long-mooted merger with Liberty Global, owner of Virgin Media, in Europe.

The Safaricom transaction does indeed suggest that Vodafone is looking to ‘clean up’ its fragmented holdings
Dhananjay Mirchandani, Bernstein analyst
“The Safaricom transaction does indeed suggest that Vodafone is looking to ‘clean up’ its fragmented holdings,” said Dhananjay Mirchandani, an analyst with Bernstein. “It is no secret that a deal with Liberty Global makes strategic sense . . . Today’s swap transaction, against the backdrop of the Idea deal in India, does appear to be yet another incremental step towards a deal with Liberty Global.”

The move also comes against a backdrop of growing political pressure in Kenya regarding the power of Safaricom in both telecoms and financial services given the success of Mpesa, Vodafone’s mobile payment system, in the country.

The Kenyan government, which owns 35 per cent of Safaricom, has resisted demands to break up the company, which enjoys 71 per cent market share in terms of subscribers, amid claims it abuses its dominant position.

Uhuru Kenyatta, Kenya’s president, told the Financial Times last week that Safaricom “is dominant because of its own innovation” and was opposed to any split of the business.

A leaked copy of an interim report by UK telecoms consultancy Analysys Mason, commissioned by the Communications Authority of Kenya, said Safaricom should be broken up unless measures are taken to improve competition. The CA has said it is still studying the matter.

Safaricom was one of three assets, alongside units in Ghana and Egypt, that were controlled by Vodafone rather than Vodacom, which owns networks in Tanzania, Lesotho, Mozambique and the Democratic Republic of Congo and 30 other African countries. A Vodafone spokesman said there were no plans to transfer the Ghana or Egypt businesses to Vodacom.

The Safaricom transfer will take Vodafone’s ownership of the South African business above the 70 per cent. Vodafone said it would sell down its stake in Vodacom to avoid breaching free-float rules in South Africa if necessary.

Vodafone will maintain a 5 per cent stake in Safaricom and maintain a seat on the board.

Safaricom last week announced Ks70.6bn ($683m) in pre-tax profit for the year to March 2017, a 27 per cent increase on the previous 12 months.

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