Vodacom BEE deal forges ahead

Johannesburg, 19 Feb 2007

Cellular provider Vodacom is still in the process of implementing what could be this year's biggest black economic empowerment (BEE) deal.

Rand Merchant Bank (RMB), which is advising the cellular company, says a shortlist is only likely to be completed in the second quarter of this year. Craig Forbes, a transactor in corporate finance at RMB, says the selection committee is still evaluating bids.

He says a shortlist of companies that will be selected for the interview stage is only likely to be wrapped up around April or May. "It's a very interesting dynamic," he says, as Vodacom is jointly held by Telkom and UK-based Vodafone.

Forbes says Vodacom will be guided in its decision-making process by the recently gazetted BEE codes, in addition to taking the as yet ungazetted ICT charter into account.

He says the parties involved require clarity on the process, and intend "doing it right", which is delaying the timeline somewhat. In addition, there has been a substantial amount of interest from industry players.

CEO Alan Knott-Craig previously said the company had received several applications for participation from BEE entities. Management, tasked with inviting applications, initially hoped to submit its proposals to the board in March. "All indications suggest the size of the transaction will be in the vicinity of R7.5 billion."

Broad-based

Last year, Vodacom said it would sell around R7.5 billion of its equity to an empowerment partner, which would allow it to meet government's equity empowerment requirements. Knott-Craig said at the company's interim results the company would finalise an empowerment deal before the end of this year. The deal, he said, would be in line with the ICT charter.

The ICT charter proposes a cut-off value of either 30% of equity, or R7.5 billion, whichever is the larger amount. Analysts say R7.5 billion equates to between 7% and 12% of Vodacom's share capital, assuming it is discounted. Vodacom is currently valued at between R90 billion and R100 billion.

Forbes says, while it is likely there will be a large broad-based component to the deal, other details cannot be divulged yet. However, analysts say a deal of this size would probably require several partners and quite a few financial partners. Most expect both Telkom and Vodafone to dilute their holding, as neither would be comfortable with the other party as a majority shareholder.

Vodacom says it cannot comment, as the deal hinges around shareholder issues. A Telkom spokesman claims he does not understand the need for the operator to comment on the deal, its format, size and timeline, but would endeavour to do so.

Vodacom's previous BEE deal, with HCI, took place in October 1996 when the empowerment partner bought a 5% stake for R118 million. Six years later, the BEE company sold its stake for R1.5 billion.