Vodacom to Buy 35% Stake in Kenya's Safaricom From Vodafone -- 2nd Update

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 Monday 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.

Write to Alexandra Wexler at alexandra.wexler@wsj.com

(END) Dow Jones Newswires

May 15, 2017 04:27 ET (08:27 GMT)