The Vodacom Group will buy a 34,94% indirect interest in Safaricom from Vodafone International Holdings, by acquiring 87,5% of the issued share capital of Vodafone Kenya, and Vodafone will subscribe for new Vodacom group shares.

The purchase consideration payable by Vodacom Group is the sum of an amount equal to the subscription price payable by Vodafone for 226,8-million new ordinary Vodacom Group shares, which will be set off against the same amount of the purchase consideration, and a maximum amount of KES393,7-million (R51-million) payable to Vodafone in cash.

Vodafone Kenya holds, as its only material asset, a 39,93% interest in Safaricom and is wholly owned by Vodafone. Vodafone will retain a 12,5% interest in Vodafone Kenya, equivalent to 4,99% interest in Safaricom, after completion of the proposed transaction.

Vodafone Kenya currently has a right to appoint, remove and/or replace four of Safaricom’s 10 directors. Following the proposed transaction, Vodafone Kenya will retain this right.

Vodafone will have the right to nominate one of the four directors appointed by Vodafone Kenya to Safaricom’s board of directors for so long as it retains at least 12,5% of the issued share capital of Vodafone Kenya.

Safaricom, established in 1997 and listed on the Nairobi Securities Exchange (NSE) with a market capitalisation of about $8-billion, provides a range of integrated telecommunications services, including mobile and fixed voice, SMS, data, Internet and mobile money (M-Pesa) to about 28,1-million customers, including both consumer and enterprise.

Safaricom is owned by the government of Kenya (35%), Vodafone Kenya (39,93%), public investors (25%) and Safaricom employees (0,07%).

The proposed transaction presents an opportunity for Vodacom to acquire a significant strategic interest in the premier telecom operator in East Africa.

Safaricom is the market leader in Kenya with a 71% mobile customer market share, has one of Kenya’s most recognisable brands and a highly experienced management team.

Safaricom is a high growth, high margin, and high cash generating business. In its 2017 financial year, it delivered 8,8% revenue growth, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 48,1% and cash flow conversion of 65,9%. The company benefits from well-invested state-of-the-art infrastructure and is the only operator with a nation-wide network which currently provides 3G and 4G coverage to 85% and 25% of the population respectively.

Safaricom delivered a compound annual growth rate in revenue of 14,8% over the last five years whilst its future growth potential is underpinned by a broad range of fundamental drivers.

The proposed transaction will expose Vodacom Group to the attractive high growth Kenyan market, being one of the largest and most advanced economies in east and central Africa that has made significant strides in technological innovation.

According to the International Monetary Fund, the Kenyan economy is projected to grow at 6% per annum over the next five years.

Kenya has a mobile penetration of 88%, which is well below South Africa’s mobile penetration of 146%. Kenya has an emerging, urban middle class with an appetite for high value goods and services. Kenya has high potential for further growth in mobile penetration and data usage is expected to continue to grow, which will increase customer demand for Safaricom’s 3G and 4G mobile, fixed line and digital services.

Safaricom’s mobile money platform, M-Pesa, is an important driver of Kenyan economic growth, providing essential financial services to over 19-million 30-day active customers.

Vodacom Group sees scope to create further value through closer cooperation between both companies, including best practice sharing; replication of Safaricom’s success in M-Pesa in Vodacom Group’s other territories; and the creation of new pan-African enterprise solutions in contiguous markets in East Africa.

The proposed transaction also offers an opportunity to diversify Vodacom Group’s economic exposure and earning’s profile in a single transaction. Its interest in Safaricom will contribute approximately 15% of its earnings (before amortisation for the fair value adjustment of assets on acquisition) based on Vodacom Group’s net profits as reported in its preliminary results for the year ended 31 March 2017.

The purchase consideration, payable by Vodacom Group for the sale and transfer of 87,5% of the issued share capital of Vodafone Kenya, is the sum of an amount equal to the subscription price payable by Vodafone for the new Vodacom Group shares, which will be set off against the same  amount of the purchase consideration, and a maximum amount of KES393,75-million (R51-million) in cash. As at the signature date, the subscription price amounts to R34,6-billion, based on the Vodacom Group share price on Friday 12 May 2017.

Vodafone Kenya holds 16 000 000 000 shares in Safaricom. The implied share subscription and set-off ratio for the number of new Vodacom Group shares to be issued, in respect of 87,5% of the 39,93% Safaricom shares held by Vodafone Kenya, is equivalent to 1.62 new Vodacom Group shares (cum dividend) for every 100 shares in Safaricom held by Vodafone Kenya.