Mergers, Acquisitions and Financial Results

In the second-largest foreign direct investment in post-apartheid SA, British-based cellular group Vodafone has made an offer to buy Venfin's 15% stake in Vodacom for R15,6bn to boost its holding in the company to 50%. The offer comes just months after another British group, Barclays Bank, bought a majority stake in SA's biggest retail bank, Absa, for nearly R28bn. But it is the lengths Vodafone is prepared to go to acquire the 15% that fascinated most analysts. Yesterday it announced it intended to acquire the entire issued shareholding in Venfin -- owners of a 25% stake in Alexander Forbes, 33% in and convertible bonds in Dimension Data -- among others. Vodafone said it was in negotiations with Venfin controlling shareholder, Rembrandt Trust Limited, about the acquisition of 35,5-million "B" ordinary shares at R47,25 a share.

Thereafter, the UK cellular operator intends making an offer to remaining shareholders to acquire their ordinary shares at the same amount. The offer represents a 41% premium to the 30-day average trading price. Fifty-five percent of Venfin shareholders have agreed to the offer. If the offer is accepted, the British cellular operator intends shedding all Venfin's interests, including the stakes in Alexander Forbes, and Dimension Data to a new company, Newco, for R5bn, although the assets are worth about R7,1bn, according to analysts at Imara SP Reid.

The analysts said Vodacom was the prize asset for Venfin, which will end up with a portfolio dominated by cash. Vodafone owns a 35% stake in Vodacom. Telkom owns the remaining 50%.With the purchase, Vodacom could be poised for massive growth in the coming months thanks to a deal to end a restrictive shareholding structure that thwarted its growth ambitions.Once Vodafone owns 50% of Vodacom, the British operator will have a vested interest in giving Vodacom a free rein to expand its operations and earn fresh revenue to boost shareholder value.

Vodacom CEO Alan Knott-Craig has long complained about the stifling shareholding and a related agreement that bans Vodacom from entering any country north of the equator. That agreement was demanded by Vodafone, so it could tackle Europe, the Middle East and Africa without competing against its partly owned offshoot.However, no country below the equator offers any significant growth opportunity, and Vodacom has watched in frustration as its rival MTN romped ahead by entering far more lucrative countries. News of the potential deal sent Venfin's shares soaring as much as 28% yesterday.

Knott-Craig has often said the Middle East holds far more potential than African countries, where consumers are poor and geographically dispersed. Vodacom managed to win permission from Vodafone to try to enter Nigeria, but was ordered to back out of a consortium it was putting together to bid for a licence in Iran.If the deal goes ahead, Vodacom will probably make a play in Egypt, where the government is expected to offer a third cellular licence Metropolitan Asset Management portfolio manager Alida Jordaan said an increased stake in Vodacom was in line with Vodafone's desire to increase its exposure to Africa's growth markets, as the European market was saturated. The increased stake in Vodacom will give the UK operator a higher exposure to the Democratic Republic of Congo, Tanzania, Lesotho and Mozambique.

Business Day