Vodafone Egypt sale reaches impasse; adverse event or powerplay?

Vodafone Group’s path to offloading its 55% stake in Vodafone Egypt appears to have hit an impasse after prospective buyer Saudi Telecom Company (stc) said no agreement had been reached, following the second extension of the memorandum of understanding (MoU) between the two groups.

stc and Vodafone confirmed in separate statements that they are keeping the dialogue open, although without giving any further details. Vodafone said due diligence has been “substantively completed” with respect to the potential sale of its stake, and it remains in discussion with stc to “finalise the transaction in the near future”.

The Saudi operator had signed a non-binding agreement in January 2020 to acquire the controlling stake for $2.4bn (£1.9bn/€2.1bn). It subsequently extended the process twice by 90 days, once in April and again in July, citing logistical challenges caused by the COVID‑19 pandemic.

Somewhat enigmatically, stc said the second extension period had expired without agreement being reached “due to misalignment with relevant parties”.

Playing a waiting game, amidst Vodafone reality-check

stc has certainly been dragging its heels since the initial agreement was signed.

It has been variously suggested that the operator required more time to allow its financial advisers to study the details, raise finance, and review the global market situation, including potential changes to consumer spending habits in the wake of the coronavirus pandemic (Vodafonewatch, #182, #183, and #185).

A recent report from Bloomberg suggested that stc had been looking to cut its original $2.4bn offer, although this has not been confirmed. Reports in the local press have also indicated that Vodafone may reconsider the price in light of “changing economic realities”, and remained committed to a market exit. The Al‑Mal newspaper reported that investment banks, including Prime and Pharos, anticipate a 20%–40% reduction.

Telecom Egypt sitting on ransom strip

The transaction is complex, with a number of factors having to be brought into alignment.

A particularly problematic element is the minority stake held by Telecom Egypt in Vodafone Egypt. stc has been told by the country’s Financial Regulatory Authority that it must also offer to buy Telecom Egypt’s 44.8% stake, under the provisions of a 1992 law mandating a tender for any outstanding shares. stc has apparently insisted that it is not willing to buy this outstanding stake. The remaining 0.2% stake is owned by small shareholders.

Telecom Egypt’s own direction remains unclear, too. However, the operator, apparently stung by inferences made by both stc and Vodafone that its position is preventing a deal from being reached, issued a rare statement on the matter.

“We can confirm that Telecom Egypt has not to date received any proposal from either of the two parties involved in the transaction, nor do we have insight into the state of discussions or terms being discussed between the parties. We are therefore unable to comment further on today’s statements except to note that the inference that Telecom Egypt has a role to play in assisting Vodafone Group and stc to conclude a transaction is unclear and without foundation.”

—Telecom Egypt.

The state‑owned operator said it has been keeping a close eye on proceedings, and has studied all options available to it. These include a right of pre‑emption to acquire the Vodafone Egypt shares that it does not already own in the event that Vodafone chooses to exit.

Vodafone, however, is clearly suggesting that resolution is now a regional matter, commenting that “Vodafone now looks to stc and Telecom Egypt to find a suitable agreement to enable the transaction to close”.