South Africa's Vodacom Faces Fresh Legal Challenges to 2008 Share Distribution

Mergers, Acquisitions and Financial Results

South Africa's Vodacom is facing fresh legal action over a 2008 divestment of shares to Black Economic Empowerment (BEE) groups.

The losing consortium that had bid to participate in the BEE allocation, Tiger Consortium Telecommunications is demanding R100 million from Vodacom for damages it says were a result of Vodacom's misrepresentation.

The group claims that Vodacom misrepresented the BEE process when it was applying by not mentioning the option for partial share allocations.

"The selection process was misleading, procedurally flawed and implemented in bad faith," it says in court papers, alleging that Vodacom's misrepresentation was fraudulent, intentional and negligent.

This is not the first time the Consortium has sued over the R7.5 billion (US$926 million) share distribution to BEE groups. It lost a previous lawsuit in June 2008, which was dismissed with costs by the  Johannesburg High Court.

The Tiger Consortium was formed in late 2004 by black Vodacom employees, the Vodacom Black Business Partners Forum and other broad-based groups.

The Consortium is currently trying to get a KPMG report released, which Vodacom is fighting, saying that it contains confidential information that has no bearing on the BEE case.

Black Economic Empowerment (BEE) is a program launched by the South African government to redress the inequalities of Apartheid by giving previously disadvantaged groups (black Africans, Coloureds and Indians who are SA citizens) economic opportunities previously not available to them. After the end of Apartheid in 1994 and with the advent of majority rule, control of big business in both the public and private sectors still rested primarily in the hands of white individuals. According to Statistics South Africa, Whites comprise just under 10% of the population, meaning that most of the country's economy was controlled by a very small minority. BEE is intended to transform the economy to be representative of the demographic make-up of the country.