South Africa’s Vodacom black economic empowerment deal set to be controversial

Mergers, Acquisitions and Financial Results

Sparks are set to fly as mobile phone network operator Vodacom moves closer to finalising its R7.5bn black economic empowerment (BEE) deal. Under normal circumstances a R7.5bn socially friendly initiative by a private entity should be celebrated. But Vodacom is set to draw controversy on this deal.

Vodacom recommitted itself to the BEE deal despite the collapse of the grand shareholder restructuring proposal to which the deal was attached. Centred on Telkom, which owns 50% of Vodacom, the plan could have seen the latter fall into the outright majority control of UK-based group Vodafone. The UK group holds the other 50% of Vodacom.

The collapsed initiative is thought to have included a bartered sale of Telkom's fixed-line assets to rival mobile network operator MTN, while relinquishing control of Vodacom to Vodafone, which in turn would bring in a BEE shareholder.

Though the talks between Telkom and MTN are off and with that the Vodafone leg of the transaction, Vodacom has said the BEE plan will go ahead. That is hard to believe, given that Telkom and Vodacom have been unable to co-operate at operational level. How will they hatch a BEE equity transfer plan which requires one of them to yield control?

Vodacom communications officer Dot Field notes that Vodacom announced in 2006 that it was contemplating a R7.5bn BEE transaction. She says the identified participants of the transaction will include all SA employees (with 25%) as well as certain strategic and broad-based BEE candidates.

The suggested split of proposed beneficiaries reflects some careful consideration by Vodacom. It comes close to matching the split preferred by the department of trade & industry, which administers the supreme empowerment guide in form of the BEE codes.

But the deal would see transfer of about 5% of equity to black hands, which is far below the target stipulated in the codes. Vodacom seems to have been guided by the default ownership target carried in the telecommunications charter, in coming up with the R7,5bn figure.

Taking into consideration the challenge of funding BEE deals for major companies, the charter stipulates an ownership target of 25% - but also allows for maximum points-scoring for deals with a minimum value of R7,5bn, irrespective of ownership level. But this charter has yet to be given official recognition. Until this happens, the Vodacom BEE transaction will be judged against the codes, which have set a minimum ownership target of 25%.

There is also the Electronic Communications Act (ECA), which demands a minimum of 30% black ownership. The ECA is a new law which seeks to modernise the sector and will see revision of operating licences, including Vodacom's.

While it is not clear how the ECA will relate to the codes and the charter, the Independent Communications Authority of SA (Icasa) suggests the ECA will reign supreme. That means Vodacom's BEE credentials will come under close scrutiny.

Icasa licensing councillor Marcia Socikwa says the organisation is fine-tuning the BEE aspects within the ECA. This process will be finished in time to have a bearing on the conversion process.

There were about 60 bidders for the Vodacom empowerment stake when the process was opened last year. The list included heavyweights like Andile Ngcaba, Saki Macozoma, Nkenke Kekana and Bulelani Ngcuka. Speculation is that Kekana's Mowana Five Mile Communications consortium is the front runner.

Financial Mail