Vodafone to sell Egyptian unit stake in $2.4bn deal

April 2020 | DEALFRONT | MERGERS & ACQUISITIONS

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April 2020 Issue

Saudi Telecom Co (STC), the largest telecom operator in Saudi Arabia, is to acquire Vodafone Group’s 55 percent stake in Vodafone Egypt for $2.4bn. Subject to regulatory approval and closing conditions, the parties expect the deal to be completed by the end of June 2020. The deal values Vodafone Egypt at $4.4bn.

The deal would be the most significant acquisition completed by STC since it bought 35 percent of Oger Telecom for $2.6bn in 2008.

Under the terms of the deal, Vodafone and Saudi Telecom have agreed to a long-term partnership, which will include the use of the Vodafone brand, preferential roaming arrangements, and access to Vodafone’s central procurement function. With 44 million subscribers and a 40 percent market share, Vodafone Egypt is the country’s biggest mobile operator.

For Vodafone, the divestiture of its Egypt stake is in keeping with the company’s efforts to streamline its operations to focus on Europe and sub-Saharan Africa. The price equates to an enterprise value of seven times core earnings, Vodafone said, a premium on the multiples of both joint-venture partners. Vodafone said it will use proceeds from the deal to reduce its outstanding debt. The company has divested a number of assets in recent years. In 2019, it sold its New Zealand business after previously offloading stakes in US carrier Verizon Communications in 2013 and Asian operators Softbank Corp and China Mobile in 2010.

“I am deeply proud of our business in Egypt, being the clear number one leader in the market,” said Nick Read, chief executive of Vodafone Group. “Under STC, I believe they will continue to flourish. This transaction is consistent with our efforts to simplify the Group to two differentiated, scaled geographic regions – Europe and sub-Saharan Africa. Additionally, it will reduce our net debt and unlock value for our shareholders. We look forward to continuing our close relationship with the business through a Partner Market agreement, and building on our significant shared service operations in Egypt, known as _VOIS (Vodafone Intelligent Solutions).”

Vodafone Group has also confirmed it will continue to operate in Egypt and plans to expand its 7800-employee service centre business, which has branches in Cairo, Giza and Alexandria, by recruiting at least 1000 more staff over the next 12-18 months.

“The potential acquisition of Vodafone Egypt is in line with our expansion strategy in the MENA region,” said Nasser al Nasser, chief executive of STC. “The transaction, which is still subject to a detailed due diligence, confirms Saudi Telecom’s eagerness to maintain a leadership position not only in the KSA, but also in the wider region. Vodafone Egypt is the leading player in the Egyptian mobile market and we look forward to contribute further to its continuous success.”

Currently, STC generates more than 90 percent of revenue from its domestic market.

Following news of the deal, Egypt’s Financial Regulatory Authority (FRA) announced that STC must offer to acquire the remaining 45 percent of the company if it completes the initial stake purchase. The remaining shares in Vodafone Egypt are held by Telecom Egypt, itself owned 80 percent by the Egyptian government and 20 percent as free-floating shares on the stock exchange.

According to Telecom Egypt, the FRA has confirmed that Saudi Telecom’s offer would be subject to the provisions of Chapter 12 of the Executive Regulations of the Egyptian Capital Market Law No. 95 / 1992, a law requiring a mandatory tender for any outstanding shares. “Telecom Egypt is closely following the aforementioned potential transaction to consider all of its possible investment options and opportunities,” said Telecom Egypt in a stock exchange disclosure. The company also said it was in the process of appointing an investment bank to study such options and their consequences, in light of the existing shareholders’ agreement and all related Egyptian laws and regulations.

Richard Summerfield