Vodafone has reportedly expressed interest in buying out Telecom Egypt’s 45% stake in their local joint venture, Vodafone Egypt.
Vodafone is ready to buy the stake but has not yet made a formal offer, Bloomberg cited an official with the UK-based…
Vodafone has reportedly expressed interest in buying out Telecom Egypt’s 45% stake in their local joint venture, Vodafone Egypt.
Vodafone is ready to buy the stake but has not yet made a formal offer, Bloomberg cited an official with the UK-based operator as saying.
The acquisition could resolve a conflict of interest that has arisen since state-controlled Telecom Egypt applied for an integrated licence that would also enable it to offer mobile services.
A Vodafone spokesperson declined to comment.
Analysts for Naeem Brokerage said in a note to investors that such a deal could raise US$2bn for Telecom Egypt, in which the state owns an 80% stake. They value Vodafone Egypt at US$4.5bn, 6x EV/EBITDA.
A South Africa-based analyst with knowledge of the Egyptian telecoms sector told TelecomFinance the valuation of such a deal is tough to call given the many factors that need to be taken into account, such as Egypt’s economic outlook, whether the mobile sector can grow up again post-price war, and potential competition from Telecom Egypt’s start-up.
The source said regional mobile valuations are about 5-7x EV/EBITDA, although the most recent deals have been closer to 6-7.5x. However, he noted that the latter include a control premium which may not apply in this case.
He also said Telecom Egypt’s market cap implies a valuation no higher than about 4x EV/EBITDA. The analyst expects the potential Vodafone acquisition to realise more than that, adding that it is difficult to say how much more.
If Vodafone is interested in taking full control of the Egyptian JV, it appears to have completely changed its strategy concerning Egypt, the source said. Three years ago, Vodafone looked at selling its 55% in the JV to Telecom Egypt but talks collapsed over price.
“But a lot has changed at Vodafone during that time, including most significantly the sale of [its 45% in US mobile JV] Verizon Wireless, which means Vodafone has more funds for M&A and is on the lookout for potential deals. Also, there are signs that Egypt mobile may have bottomed after three terrible years of price war and post-revolution economic disruption, so it could be a good time to be buying, even with the threat of a fourth entrant in the market.”
The Naeem analysts said they are unsure what Vodafone’s rationale for acquiring full ownership of Vodafone Egypt would be, given it already has full management control. However, they also noted that the UK operator’s recent stake sale in Verizon Wireless has freed up cash for a large deal.
While there has been considerable speculation that authorities may require Telecom Egypt to sell its stake in Vodafone Egypt if it secures a mobile licence, the Naeem analysts think this is unlikely as long as the telco operates as an MVNO.
“However, when Telecom Egypt eventually becomes an infrastructure-based operator with its own spectrum, it may then be forced to divest,” they said.
The Naeem analysts said Telecom Egypt may already have courted potential buyers, adding that these could include “regional heavyweights and Asian players”. They also noted such a deal would give Telecom Egypt the “financial firepower” to buy a 4G licence and roll out a network.
Telecom Egypt currently has a monopoly on landlines in the country. Egypt’s existing mobile operators are Mobinil, Vodafone Egypt and Etisalat.
