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Vodafone a possible buyer of SA’s Vodacom stake

Vodafone could consolidate its assets and drive growth in Africa – fund manager.

Vodafone Group Plc’s scattered ownership of African operations sets the continent apart from its other assets around the world. A chance to take greater control over Vodacom Group Ltd. may start to change that.

The South African government is considering a sale of its minority holding in Vodacom, Vodafone’s biggest African asset, four people with knowledge of the matter said on Wednesday. Newbury, England-based Vodafone is a possible buyer, one of the people said. The business also covers Democratic Republic of Congo, Mozambique and Tanzania.

“It would suit Vodafone to own more of the business, consolidate the assets and drive growth in Africa through a wholly owned subsidiary,” said Bruce Main, a fund manager at Ivy Asset management in Johannesburg. Vodafone may have realised that its “disjointed” ownership structure in Africa has given competitors an advantage, he said.

Vodafone’s Africa operations are divided into Vodacom, in which the U.K. company holds about 65%, Nairobi-based Safaricom Ltd., where it owns 40%, and Vodafone-branded businesses in Egypt and Ghana. Johannesburg-based MTN Group Ltd., Africa’s largest wireless operator, has units in 17 African countries.

The South African government’s 13.9% stake in Vodacom is valued at about R25.5 billion. That puts a $5.7 billion price tag on the 35% of Vodacom that Vodafone doesn’t own. The state is exploring a sale of the unit as it seeks funds to rescue utility Eskom Holdings SOC Ltd, the people with knowledge of the matter said.

Vodafone spokesman Ben Padovan declined to comment, as did Vodacom spokesman Richard Boorman.

Exiting businesses

Vodacom shares fell 0.77% to R122.02 as of 14:58 in Johannesburg, after a 2.8% decline on Wednesday. Vodafone was down 3.35% to 180.05 pence in London by 14:57 (SA time).

Vodafone Chief Executive Officer Vittorio Colao, who took the role in 2008, has unwound the company from holdings in France, Japan, Poland and China and worked on exiting companies Vodafone didn’t control. The push culminated in the $130 billion sale of its 45% stake in U.S. mobile-phone company Verizon Wireless, which was completed this year.

Africa is different. Vodafone’s businesses there are often co-owned by local governments. The Kenyan government owns 35% of Safaricom. Telecom Egypt Co., the state-controlled Egyptian phone company, owns about 45% of Vodafone Egypt.

Revenue sources

South Africa has black economic empowerment legislation to make up for discrimination during the apartheid era where non- white South Africans were hindered from participating in the economy. The laws range from the compelling of the sale of stakes in companies to non-white South Africans and pressure on companies to promote more black managers.

The African businesses are increasingly important sources of revenue for Vodafone, which has been suffering from sales declines and heavy competition in European markets. Vodacom customers spent more time on the phone last year than Vodafone’s biggest market by sales, Germany, according to data compiled by Bloomberg. Vodacom had revenue of 4.7 billion pounds ($7.5 billion) in the year ending March, making it Vodafone’s third- most valuable business by sales after Germany and the U.K.

“Vodacom is interesting because it’s a vehicle for the growth out of Tanzania and DRC and Mozambique and Lesotho,” Paul Marsch, a London-based analyst at Berenberg Bank, said by phone. “If you’re Vodafone, it would be interesting to increase your ownership of that asset simply because the growth components of it are starting to come into their own.”

©2014 Bloomberg News

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