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Vodafone in R22bn Vodacom deal

7 November 2008

Telkom has announced the sale of a 15% stake in cellular operator Vodacom, worth R22.5-billion, to multinational cellular operator Vodafone. The deal, one of South Africa's largest recent foreign direct investments, will also see Vodacom becoming one of the largest South African companies listed on the JSE.

The transaction will see Vodafone's share in Vodacom increased from 50% to 65%, giving the UK-based cellular operator full control of South Africa's largest cellular operator by subscriber numbers.

Telkom will distribute its remaining 35% stake in Vodacom to its own shareholders by way of an unbundling process, and investors will for the first time have direct equity in Vodacom.

Major foreign direct investment

Communications Minister Ivy Matsepe-Casaburri said the sale represented one of South Africa's largest recent foreign direct investments and signalled Vodafone's confidence in the future of the country.

"Furthermore, it enables Telkom to speed up its deployment of enhanced, fixed and mobile, services to South Africans," she said.

"We are confident that this transaction is beneficial to the nation, as well as to Vodacom and Telkom, and look forward to them entrenching their positions as communications champions across the African continent."

The transaction is subject to approval of 75% of Telkom's shareholders, as well as competition and industry regulatory authorities. The South African government and the Public Investment Corporation, two of Telkom's largest shareholders, have already given their support for the transaction.

The 15% stake will be sold for R22.5-billion in cash, less Vodacom's attributable net debt of R1.55-billion. Telkom will distribute half of the after-tax proceeds to its shareholders by means of a special dividend that will be paid out on completion of the transaction, which is expected to take place in the first half of 2009.

Unlocking value

"The Telkom board is confident that this transaction will unlock significant value for shareholders, and will facilitate the transformation of Telkom into a leading converged information and communications technology player on the African continent," Telkom CEO Reuben September said in a statement this week.

"The retained portion of the proceeds from the disposal will be used to accelerate the development of our mobile and data strategies, while also allowing us to selectively expand our geographic presence."

He said that the shareholders agreement between Vodafone and Telkom placed several significant restrictions on both Telkom and Vodacom, and with that out of the way, Telkom could now act independently.

Furthermore, Telkom would no longer be restricted from offering mobile voice services in South Africa or making mobile acquisitions in Africa south of the Equator. Vodacom, in turn, would be Vodafone's expansion vehicle in sub-Saharan Africa, excluding North Africa, Ghana and Kenya.

"Our approach will be to utilise the retained proceeds prudently with the aim of ensuring that Telkom remains an attractive and strongly competitive company after the transaction," September said. "Telkom will be well capitalised and will focus on its goal of becoming the leading ICT player on the African continent."

SAinfo reporter