Telkom, Vodafone to dilute Vodacom stake

Johannesburg, 09 Mar 2007

Telkom and UK-based Vodafone will both have to sell down their equal stakes in cellular firm Vodacom when a black economic-empowerment (BEE) deal is finally implemented.

The deal, to be discussed at a Vodacom board meeting next Wednesday, will see the parties selling off around R7.5 billion in the cellular firm, an amount that equates to between 7.5% and 10% of the company.

CEO Alan Knott-Craig previously said the deal would come in at around R7.5 billion, which is in line with the ICT charter. The charter proposes a cut-off value of either 30% of equity, or R7.5 billion, whichever is the larger amount.

Irnest Kaplan, MD of Kaplan Equity Analysts, says Vodacom's value in the market ranges between R70 billion and R100 billion. Assuming the stake is R7.5 billion, this places the BEE stake at between 7.5% and 10% and could see Vodafone and Telkom each holding 45%.

Telkom has declined to comment on the deal, saying it was an operational matter at Vodacom level, while Vodafone did not respond to a request for comment.

Local level

Craig Forbes, a transactor in corporate finance at RMB, says the deal is being structured at the South African operating level. "The intention at the moment is that the transaction is done at Vodacom SA level." As a subsidiary of the Vodacom group, Vodacom's dual shareholders will have to dilute their stakes equally, he says.

Forbes says the exact percentage and rand value of the deal is still being worked out. RMB is still evaluating the company's worth and the final value and percentage will only be known when this has been finalised with the empowerment partners. In addition, the final value has to meet with shareholder approval.

Vodacom's board is set to meet next Wednesday to discuss possible empowerment partners. Knott-Craig says RMB is currently driving a transparent evaluation process to identify potential partners. "No person or group has been excluded for any reason."

Broad based

Vodacom, says Forbes, is looking at a three-prong strategy that will encompass a strategic partner, staff and a broad-based component.

"The criteria... takes into account the requirement that such a BEE grouping should represent Vodacom staff, broad based representative groups of previously-disadvantaged South Africans, as well as individuals whose participation would constitute a strategic 'value-add' to the Vodacom group," comments Knott-Craig.

The Department of Trade and Industry's codes of good practice, as well as the ICT charter in its current form, are guiding the company, Forbes says. "We wish this thing could move faster... But we need to make sure we are doing it right."

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.