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Vodafone and STC Confirms Rumors; Signs MoU to Aquire 55% Stake for $2.39 billion

In a release earlier today, both Saudi Telecom Company stc and Vodafone Group have officially announced that they are negotiating the potential acquisition of Vodafone Group’s 55% stake in Vodafone Egypt.

In the press release, it states that the two telecom companies have signed an MoU, agreeing to a cash consideration of US$ 2,392M for Vodafone’s 55% of Vodafone Egypt, equivalent to a total Enterprise Value of US$ 4,350M for Vodafone Egypt. The final consideration will be determined upon signing of the definitive agreement however, and the MoU is currently not binding.

We are RED today and will be RED tomorrow. Vodafone Egypt will continue being the #1 telecom company in Egypt, with…

Posted by Alexandre Froment-Curtil on Wednesday, January 29, 2020

 

According to the release, the two companies intend to enter into a Partner Market Agreement, which will include use of the Vodafone brand, and a range of other Vodafone services.

 

Vodafone exit strategy for Egypt

Vodafone Group continues to look for exits from certain markets in a bit to continue reducing the major debt the organization has. On March 2019, it was noted that Vodafone Group had debt of €56.9b, up from €45.6b in one year.

According to Simply WallSt., Vodafone Group’s debt to equity ratio is at 124.2%.

Nick Read, Chief Executive of Vodafone, said in the statement,

“I am deeply proud of our business in Egypt, being the clear number one leader in the market. Under stc, I believe they will continue to flourish. This transaction is consistent with our efforts to simplify the Group to two differentiated, scaled geographic regions – Europe and sub-Saharan Africa. Additionally, it will reduce our net debt and unlock value for our shareholders. We look forward to continuing our close relationship with the business through a Partner Market agreement, and building on our significant shared service operations in Egypt, known as _VOIS (Vodafone Intelligent Solutions)”.

Read’s quote brings a new perspective into the mix, explaining what looks to be Vodafone Group’s (VOD) long-term plan in reducing their overall debt. It looks like VOD is looking to completely leave the MENA region to focus on its strength in Europe while expanding in Sub-Saharan Africa.

In July 2019, Vodafone exited the New Zealand market, after selling the unit to a consortium of investors for NZD3.4 billion ($2.2 billion). There is also talk about the group leaving India after struggling and announcing major net losses. Clearly, VOD is looking to get out of what it views as uncertain markets to focus on already or highly probable steady and profitable markets.

Although Read’s comment says otherwise, the release does say that Vodafone Egypt is looking to maintain a significant presence in Egypt.

While the current outlook for the acquisition looks to keep Vodafone’s red colors in the local scene, stc will most likely aim to get their brand into the market, resulting in another change in the local telecom landscape.

 

Saudi Telecom STC To Join Egyptian Market

We’ve already noted that this is not the first time that stc has looked into joining the local market as a way to expand their hold in the MENA region.

STC already operates in Saudi Arabia, Malaysia, Indonesia, Turkey, South Africa, Bahrain, and Kuwait.

In the statement earlier today, Nasser al Nasser, Chief Executive of stc, said “The potential acquisition of Vodafone Egypt is in line with our expansion strategy in the MENA region. The transaction, which is still subject to detailed due diligence, confirms stc’s eagerness to maintain a leadership position not only in the KSA, but also in the wider region. Vodafone Egypt is the leading player in the Egyptian mobile market and we look forward to contributing further to its continuing success”.

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This comment raises the potential brand change from Vodafone Eg to stc Eg may be their end goal, as it should be. This will be likely similar to the case of Mobinil and Orange, with the latter completed its acquisition of all the shares of Egyptian Company for Mobile Services Mobinil.

The current telecom landscape consists of Vodafone Eg (red), Orange (orange), Etisalat (green) and WE (purple). It will be interesting to see how stc will duke it out with fellow purple challenger WE in efforts to differentiate from each other in the competitive market.

Historically, the colors of each telecom have been leaned on heavily by each company to help consumers easier differentiate between providers.

 

Telecom Egypt Conflict Of Interest

Through the last few days of discussion on the possible acquisition of Vodafone Egypt by stc, many have not mentioned the major conflict of interest between Telecom Egypt (WE) and Vodafone Egypt.

As the 2nd major shareholder, Telecom Egypt’s almost half-ownership (44.94%) of Vodafone Egypt is a conflict of interest ever since the national provider opened its doors to the mobile market in 2017 with the launch of WE.

Only a few days ago, Telecom Egypt/WE released an official statement stating that they are have not received any recent offers for their shares of Vodafone Egypt and are not willing to sell at this moment, maintaining a combined major share of the mobile market through WE and Vodafone Egypt.

We’ve seen the Egyptian Competition Authority (ECA) force the hands of companies for lesser percentages, such as with last year’s Glovo incident (which exited the country again earlier this month), yet it doesn’t look to be making a move against the government-owned provider.

 

Vodafone Egypt’s History from MisrFone to (Possibly) stc

Vodafone Egypt has actually only been around for a short number of years, starting off as Egypt’s 2nd ever provider under a different name.

  • 1998: Vodafone Egypt (at the time Misrfone Telecommunication Company/Click GSM) entered the Egyptian Market; a consortium between Vodafone international, Air Touch, and local/ international partners.
  • 1999: Vodafone Group acquired Air Touch shares
  • 2002: VOD acquired International Partner VIVENDI France’s shares
  • 2002: Click GSM was rebranded to Vodafone Egypt
  • 2006: Vodafone Egypt launched its off-shore operations under the name of Vodafone International Services.
  • 2007: VOD completed a full acquisition of Raya Telecom

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