13 January 2006
South Africa’s Competition Tribunal has approved a R21-billion bid by British telecommunications group Vodafone to increase its stake in local cellular company Vodacom by 15%, paving the way for the second-largest foreign direct investment in SA since 1994, following the R30-billion paid by Barclays Bank for a majority stake in Absa in 2005.
Vodafone, which currently owns 35% of Vodacom, aims to lift this to 50% through its offer to locally listed investment group VenFin – which owns 15% of Vodacom – of R47.25 per share.
State company Telkom, currently the fixed line monopoly holder in South Africa, owns the remaining 50% of Vodacom.
If Vodafone’s offer is accepted – it has extended the closing date to 12pm on 27 January – it will then sell VenFin’s other assets, including stakes in free-to-air television station e.tv, investment holding company Alexander Forbes and technology group Dimension Data, for around R5-billion.
Gateway to Africa
The deal is seen as an endorsement of South Africa’s solid economic fundamentals, and more specifically of the huge growth potential in the local – and Africa-wide – telecommunications sector.
South Africa’s cellphone penetration is estimated to be around 57%; most European and East Asian markets in which Vodafone competes are close to saturation.
Vodacom’s customer base grew 39% in the six months to end-June 2005, giving it 17.2-million customers, including 14.3-million in South Africa.
The deal would give Vodafone increased access to cellular markets in South Africa, the Democratic Republic of Congo, Lesotho, Mozambique and Tanzania.
South Africa’s three mobile phone providers – Vodacom, MTN and Cell C – are fast expanding their footprint on the continent as cellular phones become Africans’ communications tool of choice.
According to the International Telecommunication Union, 43 of Africa’s 53 countries have more mobile than fixed-line subscribers, and 70% of African telephone users are mobile phone subscribers.
‘Highly attractive opportunities’
“Vodacom has been a highly successful investment for Vodafone,” Vodafone CEO Arun Sarin said when the company first made its offer in November. “The company is the established number one mobile operator in South Africa.
“This transaction enables us to enhance and protect our position by increasing our stake in a high growth business with good cash returns,” Sarin said. “There are highly attractive opportunities throughout Africa, and this move gives us greater opportunity for further expansion in the region.”
Should the deal go through, Vodacom is expected to be relieved of a shareholder restriction on trading north of the Equator. This restriction had been enforced by Vodafone, who did not want to compete against a company it only partly owned.
While the South African company’s growth into the African market has been stymied by the restriction, many analysts expect Vodafone to defer to Vodacom’s experience in expanding into new African territories.
Vodafone, the world’s largest communications group, has cellular interests in 27 countries spread across five continents.
Just days before the announcement of the Vodacom offer, Vodafone bought a 10% stake in Bharti, India’s largest cellular operator, for £820-million.