Picture: GALLO IMAGES/FOTO24/FELIX DLANGAMANDLA
Picture: GALLO IMAGES/FOTO24/FELIX DLANGAMANDLA

Vodafone Group is simplifying its holdings in sub-Saharan Africa, selling a $2.6bn stake in Kenya’s Safaricom to majority-owned Vodacom.

In the all-share deal, Vodafone will transfer a 35% stake in Safaricom to its Johannesburg-based unit in a deal that raises its Vodacom stake to about 70%. Bloomberg News reported the deal on Sunday.

The transaction gives Vodacom greater access to products such as M-Pesa, Safaricom’s fast-growing mobile-banking service. It also concentrates Vodafone’s African holdings more fully into Vodacom, simplifying management and continuing a push by the English-based parent to tidy up its developing-markets investments. In March, Vodafone agreed to merge its unit in India with local partner Idea Cellular.

"It’s a big step in terms of commitment of Vodafone to Vodacom," the South African company’s CEO, Shameel Joosub, said on a call with reporters. "Selling the asset to us does show, at least in East and southern Africa, that the assets are all under Vodacom."

Vodacom was considering other opportunities in sub-Saharan Africa, although any deals would depend on price, Joosub said in an interview after presenting earnings in Johannesburg. Vodafone’s only other standalone business in sub-Saharan Africa was in Ghana, and there had yet to be discussions between the two companies about that unit, Joosub said.

The increase in Vodafone’s stake in the South African company would cut Vodacom’s free float to below 20%, the JSE’s minimum requirement. Vodacom had agreed with the bourse on a two-year exemption from the rule, the company said.

"Before they do anything with Ghana, they’ve got to do something about the float and the easiest way is to sell down their stake," said Allan Nichols, an analyst at Morningstar in Amsterdam. A similar all-share deal with Vodacom for Vodafone Ghana would boost Vodafone’s stake in the South African unit even more, aggravating the float issue, he said.

Vodacom would issue 226.8-million new shares to its parent company for the stake, Vodafone said on Monday. The UK company will retain a 5% holding in Nairobi-based Safaricom, Kenya’s biggest company, while the East African country’s government will keep 35%.

Safaricom is the market leader in Kenya with 71% of the country’s subscribers. It is under pressure from legislators and regulators, who are debating ways to break its dominant position in the market.

The combination with Vodacom "promotes the continued successful expansion of the company as well as the opportunity to drive M-Pesa to other markets in the continent", Safaricom CEO Bob Collymore said in a statement.

Vodacom and Safaricom "jointly want to grow the M-Pesa business in the continent", Joosub said. This deal "is a very strong M-Pesa play because it makes you the biggest financial services player in Africa", he said.

Vodacom shares had risen 0.4% to R153.04 by 2.51pm in Johannesburg, valuing the company at R228bn. Safaricom was little changed in Nairobi. Vodafone stock declined 0.8% in London.

Vodacom also said on Monday that full-year earnings per share excluding one-time items increased 4.5% to R9.23, broadly in line with estimates. Sales rose 1.5% to R81.3bn.

The company raised its three-year targets for service revenue growth by percent to mid-single digits from low-to mid-single digits and earnings before interest and taxes to mid-to high-single digits.

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