Information and communication technology (ICT) group Vodacom has entered into two deals that will see it acquire a controlling stake in Vodafone Egypt and a strategic stake in Community Investment Ventures Holdings’ (CIVH’s) fibre assets through a newly formed InfraCo entity.

Vodacom Group plans to acquire a strategic stake in CIVH’s fibre assets under the InfraCo entity, into which all material assets currently owned by CIVH subsidiaries – carrier-grade dark fibre provider Dark Fibre Africa (DFA) and fibre network operator Vumatel – as well as certain Vodacom-owned fibre assets, will be transferred.

Vodacom Group will hold a co-controlling 30% equity interest, with an option to acquire an additional 10% stake in InfraCo to bring its share to 40%.

“Our agreement with CIVH aligns with Vodacom Group’s strategy to build high-quality and resilient fixed and mobile networks with and through selected strategic partnerships across the African continent. It also supports Vodacom’s purpose-driven plan to assist government in rebuilding the economy post-Covid-19,” says Vodacom Group CEO Shameel Joosub.

The deal, subject to regulatory approvals, is expected to transform Vodacom’s South African fibre business and accelerate the purpose-led group’s ambition of connecting people for a better future.

“The transaction will enhance and scale Vodacom’s fixed offerings across both the consumer and business segments and leverage a shared cost model to accelerate the provision of open-access infrastructure in South Africa,” he explains.

“The South African consumer will benefit from the fresh capital injection and shared cost approach as it will significantly scale up the fibre reach of InfraCo’s various fibre brands, including smaller towns. This is expected to have a positive impact on both Vodacom’s and the country’s network quality and resilience, which, in turn, will help fast-track South Africa’s connectivity rate.”

CIVH Group CEO Raymond Ndlovu says that the milestone investment will boost its ambitious fibre roll-out programme across South Africa and assist in narrowing the digital divide by enabling affordable access to connectivity in some of the most vulnerable parts of our society.

“Ultimately, it will result in much-needed inclusive economic growth.”

Vumatel, which builds, owns and operates a high-speed fibre-to-the-home (FTTH) network using a wholesale open-access model that passes more than 1.2-million homes, has deployed over 31 000 km of fibre infrastructure across South Africa.

In terms of the agreement, Vumatel’s fibre network will be merged with Vodacom’s FTTH and fibre-to-the-business (FTTB) assets.

DFA specialises in building, installing and operating a national metropolitan fibre network, which currently spans 13 000 km and 37 000 connected circuits, supplying a range of dark fibre and actively managed fibre products to enterprise customers.

Vodacom will pay for the transaction through a combination of R6-billion cash and the contribution of its FTTH, FTTB and business-to-business transmission access fibre network infrastructure to InfraCo, at a valuation of R4.2-billion, in return for new shares in InfraCo.

Vodacom will acquire further secondary shares from CIVH sufficient to increase its shareholding to at least 30% in InfraCo using a pre-agreed formula.

Meanwhile, Vodacom Group plans to acquire a controlling stake in Vodafone Egypt for R41-billion in a deal that it aims to close by March 2022.

The group, which announced on November 10 that it had agreed terms with Vodafone, will fund the acquisition of a 55% stake in Vodafone Egypt by issuing 242-million new ordinary shares at R135.75 a share and R8.2-billion in cash.

This values the proposed transaction, which remains subject to regulatory and shareholder approvals, at about R41-billion.

“Acquiring a majority stake in Vodafone Egypt would cement Vodacom Group’s position as Africa’s leading techco by advancing our strategic connectivity and financial services ambitions, while increasing our total population coverage on the continent to over half a billion people and more than 40% of Africa’s gross domestic product,” Joosub says.

Following the proposed transaction, Vodacom Group will cover a population of more than 500-million across the Democratic Republic of Congo, Egypt, Ethiopia, Kenya, Lesotho, Mozambique, South Africa and Tanzania.

He comments that the proposed deal will provide shareholders with a revenue and profitability diversification opportunity that has the potential to accelerate the group’s medium-term operating profit growth potential into double digits.

“Vodafone Egypt is ideally positioned to capture growth in a burgeoning ICT market,” he said, noting that Vodafone Egypt is the largest mobile network operator in Egypt with a 43% revenue market share, offering a range of integrated telecommunications services, including voice, data and mobile money services, to 43-million consumer and enterprise customers.

Vodafone Egypt has a proven track record of consistently delivering strong revenue growth, with a compound annual growth rate of 14% in revenue from 2017 to 2021, as well as generating attractive margins, strong free cash flow and a return on capital employed of 31% for the financial year ended March 31.

Further, Vodafone Egypt is the country’s largest mobile wallet provider through Vodafone Cash, which boasted almost 90% of mobile wallet transactions as at August 2021.

“Vodacom Group shareholders are expected to gain significant value by scaling its multi- product strategy or System of Advantage into Egypt. With more than 80% of Egypt’s 100-million population unbanked, there is a significant opportunity to leverage its financial services platforms, global partnerships and best practices into this largely untapped market,” Joosub adds.

Vodacom also believes that there is attractive synergy potential through the combination of Vodafone Egypt’s software factory with Vodacom Group’s existing Big Data capabilities, closer cooperation in scaling pan-African enterprise and Internet of Things solutions, enabling the proliferation of digital services through a platform approach and talent sharing.

“In 2017, we bought a strategic stake in Safaricom from Vodafone that has proven to be value accretive. We said at the time that we had negotiated an attractive price for Safaricom and we believe this to be the case with Vodafone Egypt,” he says.