Vodafone Sells $2.6 Billion Kenyan Stake to S. Africa Unit

(Bloomberg) -- Vodafone Group Plc is simplifying its holdings in sub-Saharan Africa, selling a $2.6 billion stake in Kenya’s Safaricom Ltd. to its majority-owned Vodacom Group Ltd.

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

The transaction gives Vodacom greater access to M-Pesa, Safaricom’s fast-growing mobile-banking service, and furthers Newbury, England-based Vodafone’s effort to tidy up its developing-market investments. Vodacom also adds to its holdings outside of South Africa, which include Tanzania and Mozambique.

“It’s a big step in terms of commitment of Vodafone to Vodacom,” the South African company’s chief executive officer, 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.”

The broader rationalization by Vodafone is seen by some analysts as key to a potential tie-up between the carrier and Liberty Global Plc, the topic of on-and-off talks between the two companies for years.

Vodafone Chief Executive Officer Vittorio Colao has worked to refocus the company on fewer regions and stabilize its emerging markets businesses since taking the helm almost nine years ago. Vodafone last year agreed to a joint venture with Liberty Global in the Netherlands, seen as a possible prelude to a broader merger or asset swap. In March, Vodafone agreed to merge its unit in India with local partner Idea Cellular Ltd.

Vodacom will issue 226.8 million new shares to its parent, according to a statement on Monday. The U.K. company will retain a 5 percent holding in Nairobi-based Safaricom, Kenya’s biggest company, while the East African country’s government will keep 35 percent.

Vodacom is 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 is in Ghana, and there have yet to be discussions between the two companies about that unit, Joosub said.

Before any deal in Ghana, Vodafone would probably have to sell part of its stake in Vodacom, according to Allan Nichols, an analyst at Morningstar in Amsterdam. The Safaricom transaction will cut Vodacom’s free float to below 20 percent, the minimum requirement of the Johannesburg Stock Exchange. Vodacom has agreed to a two-year exemption from the rule with the bourse, the company said.

“They’ve got to do something about the float and the easiest way is to sell down their stake,” Nichols said.

Safaricom is Kenya’s leading wireless carrier with 71 percent of the country’s subscribers, and is under pressure from lawmakers 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,” CEO Bob Collymore said in an emailed statement.

Financial Play

Vodacom and Safaricom want to expand the M-Pesa business in Africa, 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 rose 0.4 percent to 153.15 rand in Johannesburg, valuing the company at 228 billion rand ($17.3 billion). Safaricom was little changed in Nairobi, as was Vodafone stock in London.

Vodacom also said Monday that full-year earnings per share excluding one-time items increased 4.5 percent to 9.23 rand, broadly in line with estimates. Sales rose 1.5 percent to 81.3 billion rand.

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

--With assistance from Felix Njini

To contact the reporters on this story: Loni Prinsloo in Johannesburg at lprinsloo3@bloomberg.net, Janice Kew in Johannesburg at jkew4@bloomberg.net, Rebecca Penty in London at rpenty@bloomberg.net.

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, John Bowker