South Africa’s Vodacom to acquire 35% stake in Safaricom for Kshs 271 billion

South Africa’s Vodacom Group has today announced that it has agreed to acquire a 35% stake held in Kenya’s Safaricom by Vodafone Group, a transaction which the firm states could further enhance its position “as a leading African mobile communication company.”

Vodacom currently has operations in South Africa, Lesotho, Tanzania, DRC and Mozambique.

In South Africa, it is the market leader with 35.7 million active customers (as at September 30, 2016) with the number of prepaid customers standing at 30.6 million. It’s followed by MTN which by September 30, 2016 had 29.7 million subscribers, with prepaid users being 24.5 million. The third operator in terms of markershare is Cell Cwith an active subscriber base of 12.6 million (with 10.6 million on prepaid) as of October last year while Telkom SA comes fourth (and last) on the list with 3.2 million active subscribers, 2.2 million of whom are on prepaid.

The proposed transaction is valued at R34.6 billion (US $2.63 billion or Kshs 271 billion).

Commenting on the proposed transaction, Shameel Joosub, CEO of Vodacom Group, said: “This is an exciting occasion for Vodacom and a unique opportunity to diversify our revenue growth and profitability. Acquiring a strategic stake in Safaricom will provide our shareholders with access to a high growth, high margin, high cash generation business operating in a high growth market. In addition to producing mutually beneficial opportunities for growth, it will create further incremental value through the close cooperation between the two businesses, particularly in driving M-Pesa adoption across our operations.”

Vodacom Group also recognised the role of M-Pesa – which failed after being launched by Vodacom South Africa – as an important driver of Kenyan economic growth, providing essential financial services to over 19 million customers, adding that “the proposed transaction will improve Vodacom Group’s presence in East Africa, jointly increasing the company’s growth in financial services customers to 32 million, making it a formidable player in financial services on the continent.”

Vodacom South Africa issued a release on May 9, 2016 stating that the telco would stop offering the M-Pesa service within the country from June 30 of the same year, with CEO Shameel Joosub stating that the decision “is based on the fact that the business sustainability of M-Pesa is predicated on achieving a critical mass of users.”

“Based on our revised projections and high levels of financial inclusion in South Africa there is little prospect of the M-Pesa product achieving this in its current format in the mid-term,” stated the Joosub.

However, other Vodacom Group subsidiaries – Lesotho , DRC and Tanzania – still offer M-Pesa services to their subscribers.

Vodacom had launched M-Pesa services in South Africa in 2014 and by the time of phasing out the the platform, it had only 76,000 active users, while Safaricom – which had launched in 2007 – had since managed to register more than 20 million users.

Once the Vodacom Group release had been picked by news outlets – with many seeing the transaction as a move towards a possible takeover bid – Safaricom also issued its release in attempt to dispel such rumours.

“Completion of the transaction is subject to a number of conditions, including approvals from Vodacom minority shareholders, approval from the Financial Surveillance Department of the South African Reserve Bank and confirmation from the Kenya Capital Markets Authority that the Transaction does not trigger an obligation for Vodacom to make a mandatory bid for Safaricom,” stated the telco.

Once concluded, Vodacom Group will have a 35% stake in Safaricom, the same as the Kenya government, while Vodafone will be left with a 5% stake, though it currently has a 40% stake in the telco. The remaining 25% stake is held by the public.

Safaricom CEO Bob Collymore, said: “The agreement Vodafone Group has reached with the Government of Kenya will ensure Safaricom continues to have strong Kenyan representation at Board and management levels, and promotes the continued successful expansion of the company as well as the opportunity to drive M-PESA to other markets in the continent.”

In a sense, South Africa’s Vodacom Group has finally managed to get into the local market through an existing entity and without a local brand presence. In future, increasing the stake beyond the proposed 35% could give Vodacom Group the control it needs to have increased clout in the running of the Safaricom, including management appointments.