Final talks before Safaricom’s sale in Kenya
In the final stages of the talks between the Treasury and Safaricom over the sale of the mobile phone company, the negotiations are closing in a classic trade off.
The Britain headquartered global telecom will retain the right to appoint the chief executive officer and the chief financial officer and in exchange drop its demand to acquire an additional nine per cent stake that would have pushed its shareholding to 49 per cent, giving the firm close to unchallenged control.
While the Cabinet had earlier rejected Vodafone's proposal to acquire more shares in exchange for dropping its first right of refusal, or pre-emption rights, were the government to sell Safaricom, the concession by the Treasury hits a political nerve.
Two years ago, the Treasury and Vodafone were at loggerheads over the contract renewal for Michael Joseph, Safaricom's highly successful CEO. Under the shareholders' agreement, both the government and Vodafone were to pick the CEO candidates on a five-year rolling rota.
Vodafone got its first pick, Joseph in 2000, but when it came to the government's turn, the British firm insisted on a second chance. After weeks of tense negotiations over CEO succession, the Treasury caved in and agreed to renew the contract for two years.
Now, with Joseph's contract coming to an end in the first quarter of 2008 and either the current or a new government in place, picking the CEO of Kenya's most valuable and successful company would appear as a big political concession that any regime would like to lose.
But Joseph has been an asset to the firm, which has not put in place a well thought out and well publicized succession plan. The risk of losing a successful manager at a time when the company is preparing to go public would have made investors skittish.
Safaricom owes a syndicate of banks Sh12 billion and with the fast growth that the company is experiencing, it still needs the ability to tap both the equity and debt market for cash.
Though the government can technically appoint both the CEO and CFO, in the new shareholder pact, Vodafone will have the right to choose who occupies the position of managing director and financial director, the critical positions in the top hierarchy of the most profitable firm across East and Central Africa.
In the trade off, however, Vodafone will drop its quest to be given preferential treatment to grow its holding to 49 per cent over five years. Though the British firm had earlier dropped this condition, sources at the ministry of information and communication say its had not put its signature to this agreement. The quest to have Vodafone sign up to the deal comes high on the agenda of the Government team that is London to finalise the pact.
The Business Daily has established that Finance Minister Amos Kimunya, his communication counterpart Mutahi Kagwe and the Investment Secretary Esther Koimett are in London to conclude the deal. Joseph confirmed that a new shareholders pact was in place, but refused to give details. "I am sorry I cannot tell you."
Earlier, Vodafone, as a condition for the IPO to take off, had demanded that the government's nine per cent holding be transferred to a special purpose vehicle with the British firm being given pre-emptive rights to acquire the shares after the five year period.
It was to buy the shares at the market price at which it will be trading at the NSE.
Vodafone has 40 per cent holding in the mobile firm and Government, through the state owned Telkom Kenya has a 60 per cent stake.
However, Treasury is seeking to sell 25 per cent of its 60 per cent stake in Safaricom to the public through the NSE in a transaction expected to net at least Sh34 billion and billed as the largest sale ever in the Kenyan capital market. The new pact brings to an end spats between the two shareholders following the decision by Treasury to list Safaricom.
Besides reaching a deal on management positions, the twin shareholders are also said to have agreed on future shareholding structure of the mobile telephony firm and the transfer of the entire 60 per cent stake held by Telkom Kenya to Treasury.
But the Cabinet refused to buy the proposals, arguing that the British conglomerate would still retain a majority holding in the mobile firm after the IPO. However, one issue that remains unresolved is the transfer of the entire stake held by Telkom Kenya in Safaricom to Treasury.
But a source close to the negotiations said Treasury had promised to transfer the entire stake held by TelKom Kenya in Safaricom ahead of the sale of a 25 per cent stake in the mobile firm to the public through the Nairobi Stock Exchange (NSE).
The transfer of the shares, which had been slated for August, has been delayed as Telkom Kenya and Treasury are yet to conclude talks on how a Sh68.8 billion debt will be settled.
Under the deal, the government had committed to support the funding and swapping of various debts held by Telkom Kenya in return for it "acquiring" the 60 per cent stake.
Vodafone is said to have been wary of a position where another big shareholder might end up in Safaricom's shareholders roll by moving into Telkom Kenya as a strategic investor.
Already, a number of investor including British Telkom, France Telkom and South Africa Telkom have lined up to purchase a 51 per cent stake Telkom Kenya in deal worth Sh5.6 billion. The stake is set to be transferred to the winning bidder on November 26th.