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Sunday, July 02, 2006

Vodafone’s African Safari

So it appears that Arun Sarin has been in South Africa and is deep in discussions with the CEO of Telkom, Papi Molotsane, about either taking full control of Vodacom and/or Telkom. Personally, I think this strategy makes a lot of sense for Vodafone. For too long Vodafone’s ambitions in Africa has been constrained by the infighting around the Vodafone / Telkom relationship and the infamous “Nowhere North of Equator” non-compete agreement. Nowhere was this more in evidence than in the key market of Nigeria, where the fiasco of the non-acquisition of V-Mobile has probably cost Vodafone shareholders a billion pounds or so in opportunity costs.

I would go for deal along the lines of:

  • Vodafone to take control of Telkom with Vodafone placing its’ 50% equity in Vodacom into the “new” company
  • Around 25% of the “new” company floating in South Africa to give local investors a chance to invest
  • Vodafone committing to keeping South Africa as the Africa operational base for all its’ sub-Saharan business and the “new” company as the vehicle for ownership.
  • Vodafone committing to investigating “business process outsourcing” from Europe into Africa. This would take the form of call centres and other back office functions.

The last three points are really all about making the deal politically palatable and anyway make a lot of business sense.

I would then go straight away into geographical expansion mode pursuing four deal simultaneously:

1) Move Safaricom assets into Vodacom. I would also buy a majority share of the company from the government; I would also make an offer to solve its’ fixed line problems; and I would solve the mystery of the missing 5% ownership, whereby Vodafone only claim 35% ownership whereas everyone else seems to think they own 40%.

2) Move to buy the Portugal Telecom (PT) African assets: these include prime assets in neighbouring Namibia and Angola and ex-Portuguese island colonies of Cabo Verde and Sao Tome. Although these assets do not appear to be immediately for sale they will be if Sonaecom buys PT.

3) Move into Nigeria via a purchase of Globacom. This is effectively the last remaining independent mobile operator in Nigeria. The owner, Michael Adenuda, is extremely close to the current president who is due to retire after his two term presidency. If it was me, I would be making the guy a chance to cash in his chips before a new president appears with potentially a dramatically different vision.

4) Make an offer to buy Orange’s assets in Botswana and Madagascar. I doubt Orange would sell, but it sends the right message about the new aggressive stance in Africa.

In summary, I think a deal could be made to work for both parties and allow Vodacom to expand to consolidate its' leadership position in Africa. Currently, I would not place Vodafone asset in Egypt in Vodacom and instead look at using the Egyptian asset to expand in the Middle East.