The government has agreed to sell 15 per cent stake in Safaricom and Sh55.7 billion in future dividends from Safaricom for a combined Sh244.5 billion, with funds earmarked as seed capital for National Infrastructure Fund.
Vodafone Kenya will acquire 15 per cent stake from the government for Sh204.3 billion, representing a price of Sh34 per share.
According to the notice published in local dallies announcing the deal, the price of Sh34 per share represented a premium of 18.4 per cent to the average Safaricom share price at the NSE over the last 90 days.
The deal will see the government’s shareholding in Safaricom drop from 35 per cent to 20 per cent, with Vodafone Kenya acquiring majority control with 55 per cent. The remaining 25 per cent is held by the public through the Nairobi Securities Exchange.
Vodafone Kenya also agreed to buy the government’s right to receive future Safaricom dividends totaling Sh55.7 billion for an upfront payment of Sh40.2 billion, that the government would have received on its 20 per cent stake.
The company disclosed that the deal to acquire 15% Safaricom stake will be financed by a facility from Vodafone, with the dividend rights deal financed through a local Kenya shilling facility.
Vodacom in a conference call with analysts disclosed more details on the dividend deal:
“So what we did is we took a percentage of sort of expected dividend over 3-year period, and then we discounted it at an IRR of 16.5 per cent. And the way it works is if those dividends are more than the percentage, it will pay down the facility quicker, in which case the IRR will go up. However we are capped at 18% IRR. So we actually expect it to be fully down sort of just over 2 years.”
Vodacom will also acquire 100 per cent shareholding in Vodafone Kenya by acquiring shares in from Vodafone for Sh68.1 billion, a transaction that is meant to consolidate Vodafone Group’s interest in Safaricom.
The government disclosed that it was selling the 15 per cent stake for the following reasons:
- It has received a premium purchase price, which is a premium of 23.6 per cent on Safaricom’s average price over the last 6 months
- The proceeds of the deal will raise seed capital for National Infrastructure Fund.
- These funds will allow it to fund projects without taking more debt or increasing taxes.
- Vodafone is a strategic partner that brings expertise, capital and technology to Safaricom, not just money.
Treasury Cabinet Secretary, John Mbadi, also revealed they had entered into the following undertakings with Vodacom as part of the deal:
- No employee redundancies will be declared other than in the ordinary course of business.
- Safaricom will continue to support Safaricom Foundation and M-Pesa Foundation.
- Consult the government prior to any expansions outside Kenya.
- Chairman of the board and CEO shall at all times be citizens of Kenya.
- No change in executive committee as constituted on the signature date without consent of CEO.
- No change to Safaricom brand name, logos, colours and trademarks.
- No change to local suppliers within the next 3 years other than in the ordinary course of business.
- All future trustees of Safaricom Foundation, M-Pesa Foundation and any other foundation established by the company will at all times be citizens of Kenya.
- All funds for the foundations shall be utilized in Kenya.
Treasury CS also addressed the issue of M-Pesa and Safaricom splitting, stating that there are currently no plans to split the telco and the mobile money service.
The government disclosed the reasons why it did not sell the 15% stake to Kenyans:
- Vodafone Kenya offered a premium, which they wouldn’t get in the open market.
- Kenyans are already represented with government and the public now owning a combined 45 per cent stake.
- The sale was also strategic, offering the government an opportunity to onboard a globally experienced player like Vodafone as majority shareholder.
The government also says that the National Infrastructure Fund is expected to finance road network improvement, airport infrastructure upgrades, construction of dams for irrigation and energy projects to boost energy supply to the National Grid.
