The United Arab Emirates telecommunications company formerly known as Etisalat Group is reportedly thinking about buying Vodafone’s African subsidiary, Vodacom Group, after declaring on Wednesday that it has increased its stake in the Vodafone Group from 9.8% — which it acquired for $4.4 billion in May — to 11%.
Bloomberg said that the company, which is Vodafone’s largest stakeholder, “is studying the feasibility of an offer for part or all of Vodafone’s [60.5%] stake in Johannesburg-listed Vodacom Group Ltd. as it seeks to boost its international footprint.”
Etisalat is also thinking about buying certain Vodacom assets in certain countries or integrating parts of its African businesses with Vodacom. Bloomberg sources claim that there are further deal structure options on the table.
Any merger would bring together the largest Middle Eastern telecom provider and the second-largest African carrier in terms of market value.
Following the news, Vodacom’s share price increased 9.7% on the market open, closing 4.6% higher than the previous day’s market close price. Since March 2020, this represents Vodacom’s largest daily gain.
Currently, Vodafone owns 60.5% of Vodacom. In 1993, Telkom, Vodafone, and Venfin established Vodacom as a joint venture. Ownership was divided among the stockholders as 50%, 35%, and 15%.
In 1996, Black Economic Empowerment business Hosken Consolidated Investments purchased a 5% interest in Vodacom from Vodafone and VenFin for R118 million. Hosken returned the 5% interest to Vodafone and VenFin in 2002 for R1.5 billion.
Telkom and Vodafone both owned exactly 50% of the mobile network provider after Venfin sold its stake to Vodacom in 2006. In 2008, Telkom decided against forming its own mobile network operator, 8ta, which was eventually renamed Telkom Mobile, and instead opted to sell 15% of its investment in Vodacom to Vodafone Group. Through an unbundling procedure, the company divided the remaining 15% of its shareholding among its stockholders.
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What the deal might mean for the telecoms industry in Africa
Over the past few months, Vodafone has gradually merged its African businesses under Vodacom. The UK operator revealed in September that it has given Vodacom its 55% stake in Vodafone Egypt in exchange for money and additional ordinary Vodacom shares.
When Etisalat buys Vodacom, its activities in seven West African countries, which serve more than 50 million people, will be combined with Vodacom’s operations in six African nations, which serve more than 400 million people.
If it goes through, the acquisition will elevate Etisalat to the top three mobile network carriers in Africa, competing with long-standing leaders MTN Group in South Africa and Orange in France.
As MTN tries to fend off Etisalat’s onslaught on the local market, the merger might force MTN and Telkom to resume their South African purchase negotiations that ended in failure in October. Telkom may also be more motivated to take Rain’s merger proposal seriously if it wants to catch up to the nation’s top carriers.
The Qatar Investment Authority is set to purchase 20% of Vodafone Egypt
Nothing is final just yet
According to Bloomberg, “deliberations are ongoing and there’s no certainty they’ll lead to any transactions.”
“Etisalat’s possible acquisition of Vodafone’s 60% stake in African carrier Vodacom may face many obstacles as the governments of Morocco, South Africa, and Kenya — as well as regulatory and competition authorities — would need to sign off,” adds Bloomberg Intelligence.
With competence in mobile money and emerging-market telecommunications, an agreement might result in significant benefits for Etisalat and enhance its operations outside of the United Arab Emirates.
