Saudi Telecom offers $2.39 billion for Vodafone Egypt stake

Riyadh: Saudi Telecom Co. offered $2.39 billion for Vodafone Group Plc’s holding in its Egyptian unit as it seeks ways to expand outside its home market.

The cash offer is for Vodafone’s 55 per cent stake in Vodafone Egypt, the country’s largest mobile operator, and the memorandum of understanding is valid for 75 days, according to a statement. The non-binding offer gives an enterprise value of $4.35 billion for the North African firm.

STC, as the Saudi telecom firm is known, is looking to diversify outside its domestic market, which still makes up more than 90 per cent of revenue. The deal gives it access to a country of over 80 million people where Vodafone Egypt has a market share of about 44 per cent. Shares in the company rose 1.2 per cent at 10:41 in Riyadh. Telecom Egypt shares jumped 10 per cent.

“The potential acquisition of Vodafone Egypt is in line with our expansion strategy in the MENA region,” Chief Executive Officer Nasser Sulaiman Al Nasser said in the statement. “Vodafone Egypt is the leading player in the Egyptian mobile market and we look forward to contributing further to its continuing success.”

More than six years ago, the company had tried to acquire a 45 per cent stake in Vodafone Egypt held by state-run Telecom Egypt. Vodafone Group had also expressed interest in buying the Egyptian state-run telecommunication company’s holding in the unit. Neither deal was realised.

Telecom Egypt said it is considering “all the possible ways it may deal with its investment,” according to a statement.

Debt Reduction

Vodafone said it will use proceeds from the deal to reduce debt. The potential sale is also “consistent with our efforts to simplify the group to two differentiated, scaled geographic regions — Europe and sub-Saharan Africa,” Vodafone CEO Nick Read said in a statement.

Vodafone has been retrenching from markets outside Europe and Africa over the past decade, to raise cash to ease leverage concerns and build up scale in core markets such as Germany. Vodafone sold its New Zealand business last year, after offloading stakes in US carrier Verizon Communications Inc. in 2013 and Asian operators Softbank Corp. and China Mobile Ltd. in 2010.

“Vodafone’s likely sale to Saudi Arabia Telecom of its 55 per cent stake at Vodafone Egypt at a multiple of 7x Ebitda heralds further portfolio reviews, we believe, given the UK company’s focus on core sub-Saharan African and Europe. A possible sale of its Turkish unit at a similar multiple could fetch 2.4 billion euros, assuming 3x leverage. Peers’ multiples, averaging 4x, nevertheless suggest much lower proceeds,” Erhan Gurses, telecom analyst, said.

STC still derives the vast share of revenue from Saudi Arabia, though it has bought stakes in telecom companies operating in Turkey, Indonesia, Bahrain, Kuwait and Malaysia over the past decade. If a transaction is finalised the companies expect to keep the Vodafone brand.