The saga of the sale of Vodafone Egypt continued this week as Telecom Egypt (TE) announced it was contemplating acquiring all of the company to complement its existing 45 per cent stake.
The Saudi Telecom Company (STC) agreed with Vodafone International a few weeks ago to buy its 55 per cent stake in Vodafone Egypt for $2.39 billion, with experts saying at the time that Telecom Egypt (TE) would be better off selling its 45 per cent stake to STC as well.
However, TE announced last week that it was entitled to a right of pre-emption in the potential sale of the Vodafone majority stake to STC, being a contractual right allowing it to buy Vodafone International’s shares if it submits the same offer as STC or larger.
TE said in a statement that the pre-emption right was guaranteed under a shareholders’ agreement with Vodafone Egypt.
Vodafone Egypt is the largest of the country’s four mobile operators, with a market share of more than 40 per cent translating into 44 million subscribers. STC is Saudi Arabia’s biggest mobile operator, with about 45 per cent market share.
Meanwhile, Vodafone Egypt has filed a formal request to the Egyptian Competition Authority to investigate the legality of TE’s bid to acquire the rest of the Vodafone shares based on the right of pre-emption.
TE launched its own mobile network (WE) in 2017, and if it acquires the rest of Vodafone, it will own and operate two of Egypt’s four mobile operators and undermine competition in the telecommunications market.
“I don’t think that TE will move to acquire the rest of Vodafone Egypt,” said Allen Sandeep, director of research at Naeem Holding. “I don’t think the government would pay that much money now, especially as TE is still billions in debt after launching its own mobile network in 2017,” he added.
TE’s debt portfolio amounts to LE15 billion.
TE announced last week that all options related to the Vodafone-STC deal were being studied, and that it would take all the measures necessary to make the best use of rights guaranteed under Egyptian law for the benefit of its stakeholders.
TE has also appointed EFG Hermes and Citibank to advise it on investment alternatives to its stake in Vodafone Egypt.
“A financial advisor will advise on options related to the ongoing deal, especially as STC has not submitted a final offer to buy Vodafone,” Sandeep explained, adding that the price offered by STC was good, which was why TE was studying its options.
“All options include buying, selling, partially buying, or partially selling,” he added.
The deal is expected to be finalised by June, and STC said the non-binding agreement would be valid for 75 days starting 29 January and could be extended until a final agreement was reached between the two parties.
“TE might end up deciding to sell part of its 45 per cent stake to lessen its debt,” said Sandeep. However, the question remains of whether STC will be willing to buy TE’s stake, and if it does whether it will offer the same or a higher price.
The Egyptian Financial Regulatory Authority has announced that STC must offer to buy the remaining 45 per cent stake in Vodafone Egypt held by TE, citing a 1992 law that would legally bind the Saudi company to making an offer for all the shares if its first offer is accepted.
The Al-Shorouk newspaper cited an unnamed source as saying that STC was planning to present paperwork to the Capital Markets Authority (CMA), which would make the company exempt from making a mandatory offer for TE’s stake in Vodafone Egypt.
The credit ratings agency Moody’s said in a report recently that STC’s acquisition of Vodafone Egypt would be credit-negative if the transaction was fully debt-funded. STC is reportedly negotiating with Vodafone to pay in installments instead of cash because of Moody’s warning of a potentially lower credit-rating.
“I hope this doesn’t affect the deal, which is beneficial to the telecommunications market in Egypt,” Sandeep said.
For Vodafone International, there is no difference if it sells its stake in Vodafone Egypt to STC or TE, as long as its gets its money, he added.
“Pulling out of Egypt is consistent with Vodafone International’s efforts to focus on two geographical regions, Europe and Sub-Saharan Africa,” Nick Read, chief executive of Vodafone International, said in a press statement.
*A version of this article appears in print in the 20 February, 2020 edition of Al-Ahram Weekly.