Vodacom Group Ltd., South Africa's largest mobile operator by subscribers, is buying a $2.59 billion stake in Kenya's Safaricom Ltd. in the hope of popularizing the highly-touted East African mobile money service M-Pesa across the broader continent.
Vodacom said it has agreed to acquire a 35% stake in Safaricom, Kenya's biggest mobile operator, from Vodafone International Holdings B.V. by issuing 226.8 million new ordinary shares. The deal is a reshuffling of the pack for Vodafone, which has big stakes in both companies, in Africa.
Based on Vodacom's closing price Friday of 152.49 rand per Vodacom share on the Johannesburg Stock Exchange, the deal is worth 34.6 billion rand ($2.59 billion), a 5.9% discount to the Safaricom share price on the Nairobi Securities Exchange at closing ahead of the announcement. Vodacom shares are up 0.1% year-to-date, while Safaricom shares are up 5.7%.
"Acquiring a strategic stake in Safaricom will provide our shareholders with access to a high growth, high margin, high cash generation business operating in a high growth market," Shameel Joosub, chief executive of Vodacom, said in a statement. He added that he hopes the closer cooperation between the two companies will help drive the adoption of M-Pesa in Vodacom's other markets.
Analysts have previously said that M-Pesa, which has struggled to gain traction in some of the continent's more developed economies such as South Africa, doesn't hold much value for consumers who are already included in the formal banking sector. Vodacom scrapped the service in South Africa altogether last year amid poor uptake by consumers.
Vodacom, which is majority-owned by Vodafone Group Ltd., plans to acquire 87.5% of the issued share capital of Vodafone Kenya Ltd., which holds a 40% interest in Safaricom and is wholly owned by Vodafone. Vodafone will retain a 12.5% interest in Vodafone Kenya, and about a 5% interest in Safaricom, after completion of the proposed transaction. Vodafone will subscribe for new Vodacom shares, and its interest in Vodacom will rise to 70% from 65% currently.
Vodacom says it hopes 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."
Vodacom, with 66.8 million customers on the continent, expects the interest in Safaricom to contribute about 15% of its earnings, based on Vodacom's net profit for the year ended March 31, which rose from a year earlier, due to strong customer additions in South Africa, where the company added 3 million subscribers.
Net profit rose 3.9% to 13.42 billion rand. Revenue rose 1.5% to 81.28 billion rand.
The company declared a second-half dividend of 4.35 rand a share, making the total dividend for the year 8.30 rand a share.
Vodacom said its international operations continued to be affected by currency volatility as well as new customer registration processes. In 2015, Nigerian authorities fined MTN Group Ltd., Africa's largest telecommunications company, billions of dollars after it failed to disconnect improperly registered SIM cards by a government-imposed deadline, under regulations meant to combat terrorism. Other governments have since ordered similar disconnections of unregistered users under new subscriber registration legislation.
Still, Vodacom said its international operations added 2.5 million customers for the year, with international data revenue up 2.3% to 4.11 billion rand, thanks to a 29% increase in customers that use data to 13 million.
- Dow Jones Newswires
Safaricom has launched a tap-and-go M-Pesa card intended to ease mobile money payments in a bid to grow revenues.
The M-Pesa card will allow customers to make payments at retail point-of-sale (PoS) terminals by tapping their tags on them and inputting their security codes after a real-time pop-up prompt. “M-Pesa 1 Tap will reduce the number of steps a customer needs to take to pay for goods and services from the current eight to just one,” Safaricom chief executive Bob Collymore said.
“It will supplement the number of initiatives that we’ve taken to expand the M-Pesa ecosystem in the past few years.” The card, which is near-field communication (NFC) enabled, has been rolled out in Nakuru — with a nationwide launch scheduled for July. Its variants include a phone sticker and a wristband.
Normal M-Pesa charges will apply. Customers will not be required to show cashiers their “confirmation” messages as proof of payment. Kenya’s economy is still mainly reliant on cash payments with plastic cards and mobile money services such as M-Pesa, Airtel Money and Orange Money still lagging behind.
Safaricom’s move to ease M-Pesa payments through the cards is an attempt to grow its income from retail payments and boost mobile money revenue which stood at Sh55.1 billion in March, a 32.7 per cent year-on-year growth. The telco has issued the devices to 13,000 customers in Nakuru and 600 retailers in the town have acquired the NFC-compatible PoS machines.
Credit: Nation Group Kenya
Safaricom Ltd, East Africa’s biggest mobile-phone company, would have to reconsider future investment in Kenya if proposals to break up the company are implemented, the head of mobile money at parent Vodafone Plc said.
The company 40 percent owned by Newbury, England-based Vodafone was found to be Kenya’s dominant carrier in a draft report by U.K.-based advisory group Analysys Mason. The study was commissioned by the Communications Authority of Kenya to check whether the market leader had abused its position.
The report recommends Safaricom opens up its mobile-money platform known as M-Pesa to transfers from competitors’ services at prices determined by the regulator. Separately, Kenyan opposition lawmaker Jakoyo Midiwo is also proposing a law to force a Safaricom split, a plan that Chief Executive Officer Bob Collymore has called “plain stupid.”
The proposal is “inconceivable thinking,” said Michael Joseph, Vodafone’s director of mobile money, who founded the decade-old service when he was Safaricom’s chief executive officer.
“If you say it’s a 100 percent subsidiary of Safaricom, the M-Pesa Company has to buy services from Safaricom because of the tax implication; value added tax, inter-company taxes, Competition Authority regulations,” Joseph said in a phone interview Monday. “If you have to make these investments and everybody benefits including your competitors, you probably won’t make that investment, you’ll think very carefully about them.”
Depending on how the split is executed, M-Pesa may have to buy services such as Unstructured Supplementary Service Data, or USSD, from its parent at market rates, which would push up the cost of making transfers, Joseph said.
“The whole idea that you want to split a company up because it is successful to me is just completely ridiculous,” he said, referring to the lawmaker’s proposal to break up the company. “You are punishing success. Why would you do that?”
Analysys Mason has declined to comment on its report, which is yet to be finalized. The Communications Authority, which regulates the industry, said last week it’s reviewing the report before releasing it to the public.
Safaricom is Kenya’s biggest mobile provider with a 69 percent market share, according to the regulator’s statistics. Its closest rival is the national unit of Bharti Airtel Ltd., with 17.5 percent, while it also competes with Helios Investment Partners LLP-owned Telkom Kenya.
The Kenyan government doesn’t support regulation that stifles competition or forces companies to split based on their innovation, Information, Communications and Technology Secretary Joe Mucheru said last week. Safaricom shares have fallen for seven consecutive sessions to the lowest level since March 21, according to data compiled by Bloomberg.
“I don’t know why you need a regulatory intervention in a free-market economy,” Joseph said. “I cannot see why you need to have regulations for a guy who cannot be successful because they have never invested.”