Vodacom’s shares pulled back a little on Thursday after rising as much as 8.8% on Wednesday after news that its UK-based parent, Vodafone, is considering selling its stake in SA’s largest mobile operator to Abu Dhabi’s Etisalat.
Analysts, however, are unconvinced that the deal will go through, but should it, it would result in a roughly R142bn transaction, eight times Telkom’s present market capitalisation.
Bloomberg reported on Wednesday that Emirates Telecommunications Group (Etisalat) is exploring a potential investment for all or part of Vodafone’s African business as it seeks to boost its international footprint, according to people familiar with the matter.
Etisalat is said to also be weighing up the possibility of combining some of its own African operations with Vodacom or buying Vodacom assets in specific countries. It said that such talks are in the early stages with other options a possibility.
Vodafone owns roughly 60% of Johannesburg-based Vodacom.
Vodacom, valued at R237bn, saw its shares lose 1.56% on Thursday to R129.75. On Wednesday, they jumped as much as 8.8% before ending the day up 4.6%. The stock has lost 3.6% so far this year.
While such a transaction would undoubtedly be large, analysts appear — for now — to be unconvinced that Vodafone will let go of its African investments.
“Vodafone has previously shown interest in holding on to its Vodacom shareholding while consolidating its direct shareholdings in other African countries into Vodacom. I’m not sure if Vodafone’s strategy is changing,” said Peter Takaendesa, head of equities at Mergence Investment Managers.
Absa Asset Management’s Roy Mutooni says “it’s an interesting approach but one that doesn’t seem probable”.
“From a financial perspective that would require a significant investment and a regulatory burden involving the governments of Kenya, SA and Ethiopia. It’s unclear what value would need to be created to justify this multi-year regulatory process.”
He also said Vodacom’s earnings have been static for more than eight years and the next five will be capital-intensive owing to the group’s investment in establishing operations in Ethiopia and a R13bn merger with Remgro’s CIVH that will require funds to expand its fibre network.
There is also thinking that Etisalat’s moves are more geared towards Vodafone.
The state-backed company recently became Vodafone’s largest shareholder when it took up a 10% stake in the UK firm for $4.4bn. That has now increased to 11%.
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