Etisalat plotting acquisition of Vodafone’s Vodacom stake

After announcing 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%, the United Arab Emirates telecommunications firm formerly known as Etisalat Group is reportedly considering acquiring Vodafone’s African subsidiary, Vodacom Group.

According to a report by Bloomberg, the firm, which is Vodafone’s largest shareholder, “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.”

Additionally, Etisalat is also considering merging some of its African operations with Vodacom or purchasing Vodacom assets in specific countries. According to Bloomberg sources, other forms of structuring the deal are also on the table.

Vodacom’s share price gained 9.7% on its market open price following the news, closing at 4.6% higher than its market close price the previous day. This represents Vodacom’s biggest daily gain since March 2020.

Vodafone currently owns 60.5% of Vodacom. Vodacom was founded as a joint venture in 1993 between Telkom, Vodafone and Venfin. The shareholders owned 50%, 35% and 15% respectively. 

In 1996, Vodafone and VenFin sold a 5% stake in Vodacom to a Black Economic Empowerment company, Hosken Consolidated Investments for R118 million. In 2002, Hosken sold the 5% stake back to Vodafone and VenFin for R1.5 billion.

In 2006, Venfin sold its stake to Vodacom, meaning that both Telkom and Vodafone owned exactly 50% of the mobile network operator. In 2008, Telkom agreed to sell 15% of its stake in Vodacom to Vodafone Group in favor of creating its own mobile network operator, 8ta, which was later rebranded to Telkom Mobile. The remaining 15% of its shareholding was distributed to its shareholders through an unbundling process.

What the deal could mean for the African and South African telecoms sector

Vodafone has been steadily consolidating its African operations under Vodacom for the last few months. In September, the UK operator announced that it had transferred its 55% interest in Vodafone Egypt to Vodacom in exchange for cash and new ordinary shares in Vodacom.

Etisalat acquiring Vodacom would mean it could combine its operations in seven West African nations which serve over 50 million people, with Vodacom’s operations in six African countries which serve over 400 million people.

If it goes through, the deal would make Etisalat one of Africa’s top 3 largest mobile network operators, rivaling long-term incumbents South Africa’s MTN Group and France’s Orange.

In South Africa, the deal could inspire MTN and Telkom to rekindle their acquisition talks which broke down in October, as MTN tries to put off Etisalat’s pressure in the South African market. Telkom could also be more motivated to take Rain’s merger proposition seriously to try to catch up to the top operators in the country.

Nothing is set in stone 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.